OCWEN FINANCIAL CORP - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from: ____________________ to ____________________

Commission File No. 1-13219

OCWEN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Florida		65-0039856
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 100		33409
West Palm Beach,	Florida
(Address of principal executive office)		(Zip Code)

(561) 682-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	OCN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No x

Number of shares of common stock outstanding as of May 2, 2022: 9,250,500 shares

OCWEN FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	4

	Consolidated Balance Sheets at March 31, 2022 and December 31, 2021	4

	Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021	6

	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and 2021	7

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	89

Item 4.	Controls and Procedures	93

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	94

Item 1A.	Risk Factors	94

Item 6.	Exhibits	94

Signatures		95

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.

Forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology. Forward-looking statements are typically identified by words such as “expect”, “believe”, “foresee”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan”, “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Readers should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed under Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 and the following:

•uncertainty relating to the continuing impacts of the COVID-19 pandemic, including with respect to the response of the U.S. government, state governments, the Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the GSEs), the Government National Mortgage Association (Ginnie Mae) and regulators;

•the potential for ongoing disruption in the financial markets and in commercial activity generally related to COVID-19, international events including the conflict in Ukraine, changes in monetary and fiscal policy, and other sources of instability;

•the impacts of employment disruption, inflation, and other financial difficulties facing our borrowers;

•the proportion of borrowers who enter into forbearance plans, the financial ability of borrowers to resume repayment and their timing for doing so;

•the extent to which our mortgage servicing right (MSR) joint venture with Oaktree Capital Management L.P. and its affiliates (Oaktree), other transactions and our enterprise sales initiatives will generate additional subservicing volume and result in increased profitability;

•our ability, and the ability of MSR Asset Vehicle LLC (MAV), to bid competitively for, and close acquisitions of, MSRs on terms that will enable us to achieve our growth objectives and a favorable return on our investment in MAV;

•our ability to reach an agreement to upsize MAV and the timing and terms of any such agreement;

•our ability to identify, enter into and close additional strategic transactions, including the ability to obtain regulatory approvals, enter into definitive financing arrangements, and satisfy closing conditions, and the timing for doing so;

•our ability to efficiently integrate the operations and assets of acquired businesses and to retain their employees and customers over time;

•the extent to which we will be able to execute call rights transactions, and whether such transactions will generate the returns anticipated;

•the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, and Home Equity Conversion Mortgage (HECM) and forward loan buyouts and put-backs, as well as repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them;

•increased servicing costs based on rising borrower delinquency levels or other factors, including an increase in severe weather events resulting in property damage and financial hardship to our borrowers;

•reduced collection of servicing fees and ancillary income and delayed collection of servicing revenue as a result of forbearance plans and moratoria on evictions and foreclosure proceedings;

•our ability to improve our financial performance through cost re-engineering initiatives and other actions;

•our ability to maintain and increase market share in our target markets, including in forward and reverse servicing;

•our ability to reduce expenses in our mortgage origination business in response to market adjustments;

•uncertainty related to our long-term relationship with New Residential Investment Corp. (NRZ), our largest servicing client;

•uncertainty related to past, present or future claims, litigation, cease and desist orders and investigations relating to our business practices, including those brought by private parties and state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD);

•adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements and the reactions of key counterparties, including lenders, the GSEs and Ginnie Mae;

•the costs of complying with the terms of our settlements with regulatory agencies and disputes as to whether we have fully complied;

•any adverse developments in existing legal proceedings or the initiation of new legal proceedings;

•our ability to efficiently manage our regulatory and contractual compliance obligations and fully comply with all applicable requirements;

•uncertainty related to changes in legislation, regulations, government programs and policies, industry initiatives, best servicing and lending practices, and media scrutiny of our business and industry;

•the extent to which changes in the law as well as changes in the interpretation of law may require us to modify our business practices and expose us to increased expense and litigation risk;

•our ability to interpret correctly and comply with current or future liquidity, net worth and other financial and other requirements of regulators, the GSEs and Ginnie Mae, as well as those set forth in our debt and other agreements;

•our ability to comply with our servicing agreements, including our ability to comply with our agreements with the GSEs and Ginnie Mae and maintain our seller/servicer and other statuses with them;

•our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;

•failure of our, or our vendors’, information technology or other security systems or breach of our, or our vendors’, privacy protections, including any failure to protect customers’ data;

•our reliance on our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, and uncertainty relating to our ability to transition to alternative vendors, if necessary, without incurring significant cost or disruption to our operations;

•increased difficulty recruiting and retaining existing or new senior managers and key employees;

•increased compensation and benefits expense as a result of rising inflation and labor market trends;

•uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, the GSEs, Ginnie Mae and trustees regarding loan put-backs, penalties and legal actions;

•uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of the HUD or Department of Veterans Affairs (VA) ceasing to provide insurance;

•uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;

•uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;

•uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;

•the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;

•our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;

•uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;

•our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;

•our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;

•our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;

•uncertainty relating to the likely replacement of the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR) and its impact on our credit arrangements;

•our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;

•increasingly frequent and costly disruptions to our operations as a result of severe weather events;

•uncertainty related to the political or economic stability of the United States and of the foreign countries in which we have operations; and

•our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2021 and our Current Reports on Form 8-K since such date. Forward-looking statements speak only as of the date they were made and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)


	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	268,691	$	192,792
Restricted cash ($8,800 and $9,759 related to variable interest entities (VIEs))	76,294		70,654
Mortgage servicing rights (MSRs), at fair value	2,323,281		2,250,147
Advances, net ($578,611 and $587,059 related to VIEs)	729,973		772,433

Loans held for sale ($716,024 and $917,534 carried at fair value) ($241,676 and $462,144 related to VIEs)	725,051		928,527
Loans held for investment, at fair value ($7,722 and $7,879 related to VIEs)	7,459,277		7,207,641
Receivables, net	213,460		180,707





Investment in equity method investee	34,925		23,297
Premises and equipment, net	20,573		13,674
Other assets ($9,513 and $21,886 carried at fair value) ($1,066 and $1,530 related to VIEs)	446,284		507,250

Total assets	$	12,297,809	$	12,147,123

Liabilities and Equity
Liabilities
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value	$	7,118,844	$	6,885,022
Other financing liabilities, at fair value ($319,009 and $238,144 due to related party) ($7,722 and $7,879 related to VIEs )	872,036		804,963
Advance match funded liabilities (related to VIEs)	497,310		512,297
Mortgage loan warehouse facilities	959,121		1,085,076
MSR financing facilities, net	892,635		900,760

Senior notes, net ($224,204 and $222,242 due to related party)	617,132		614,797

Other liabilities ($12,916 and $3,080 carried at fair value)	806,601		867,514

Total liabilities	11,763,679		11,670,429

Commitments and Contingencies (Notes 20 and 21)

Stockholders’ Equity

Common stock, $.01 par value; 13,333,333 shares authorized; 9,243,658 and 9,208,312 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.	92		92

Additional paid-in capital	591,811		592,572
Accumulated deficit	(55,522)		(113,604)
Accumulated other comprehensive loss, net of income taxes	(2,251)		(2,366)


Total stockholders’ equity	534,130		476,694
Total liabilities and stockholders’ equity	$	12,297,809	$	12,147,123

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)


	For the Three Months Ended March 31,
	2022		2021
Revenue
Servicing and subservicing fees	$	212,623	$	171,738
Reverse mortgage revenue, net	13,110		21,826
Gain (loss) on loans held for sale, net	(3,206)		5,721

Other revenue, net	9,036		8,309
Total revenue	231,563		207,594

MSR valuation adjustments, net	62,632		21,208

Operating expenses
Compensation and benefits	68,003		68,281
Technology and communications	14,912		13,143
Servicing and origination	14,167		27,470
Professional services	12,167		17,322
Occupancy and equipment	10,067		8,852


Other expenses	7,702		4,561
Total operating expenses	127,018		139,629

Other income (expense)
Interest income	7,112		3,936
Interest expense	(37,875)		(28,452)
Pledged MSR liability expense	(86,897)		(37,850)
Earnings of equity method investee	12,003		—
Loss on extinguishment of debt	(33)		(15,458)


Other, net	(162)		290
Total other income (expense), net	(105,852)		(77,534)

Income before income taxes	61,325		11,639
Income tax expense (benefit)	3,243		3,096
Net income (loss)	$	58,082	$	8,543



Earnings per share
Basic	$	6.30	$	0.98
Diluted	$	6.01	$	0.96

Weighted average common shares outstanding
Basic	9,215,122		8,688,009
Diluted	9,661,567		8,877,492

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)


	For the Three Months Ended March 31,
	2022		2021
Net income (loss)	$	58,082	$	8,543

Other comprehensive income (loss), net of income taxes:


Change in unfunded pension plan obligation liability	91		(367)
Other	24		24
Comprehensive income (loss)	$	58,197	$	8,200

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Dollars in thousands)


	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Taxes		Total
	Shares	Amount

Balance at December 31, 2021	9,208,312	$	92	$	592,572	$	(113,604)	$	(2,366)	$	476,694
Net income	—	—		—		58,082		—		58,082









Equity-based compensation and other	35,346	—		(761)		—		—		(761)
Other comprehensive income, net of income taxes	—	—		—		—		115		115
Balance at March 31, 2022	9,243,658	$	92	$	591,811	$	(55,522)	$	(2,251)	$	534,130

Balance at December 31, 2020	8,687,750	$	87	$	556,062	$	(131,682)	$	(9,095)	$	415,372
Net income	—	—		—		8,543		—		8,543






Issuance of common stock warrants, net of issuance costs	—	—		15,753		—		—		15,753

Equity-based compensation and other	13,780	—		685		—		—		685
Other comprehensive loss, net of income taxes	—	—		—		—		(343)		(343)
Balance at March 31, 2021	8,701,530	$	87	$	572,500	$	(123,139)	$	(9,438)	$	440,010

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)


	For the Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net income	$	58,082	$	8,543
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
MSR valuation adjustments, net	(62,632)		(21,208)
Loss on sale of MSRs, net	100		25

Provision for bad debts	4,147		6,545
Depreciation	2,602		2,859


Amortization of debt issuance costs and discount	2,539		1,624
Equity-based compensation expense	(143)		863
Loss on extinguishment of debt	33		15,458



Loss on valuation of Pledged MSR financing liability	55,459		1,551
Net loss (gain) on valuation of loans held for investment and HMBS-related borrowings	3,132		(6,513)
Earnings of equity method investee	(12,003)		—
Loss (gain) on loans held for sale, net	3,206		(5,721)

Origination and purchase of loans held for sale	(3,472,610)		(3,333,999)
Proceeds from sale and collections of loans held for sale	3,600,893		3,179,487
Changes in assets and liabilities:
Decrease in advances, net	27,299		38,704
Increase in receivables and other assets, net	(12,017)		(2,447)
Decrease in other liabilities	(12,812)		(13,245)
Other, net	799		(2,833)
Net cash provided by (used in) operating activities	186,074		(130,307)

Cash flows from investing activities
Origination of loans held for investment	(620,237)		(326,735)
Acquisition of loans held for investment, net	(3,634)		—
Principal payments received on loans held for investment	518,974		315,105
Purchase of MSRs	(64,297)		(41,556)
Proceeds from sale of MSRs	134,284		—





Additions to premises and equipment	(1,411)		(137)
Purchase of real estate	(197)		(2,165)
Proceeds from sale of real estate	2,058		2,306



Investment in equity method investee	(16,500)		—
Distribution of capital from equity method investee	16,875		—
Other, net	401		350
Net cash used in investing activities	(33,684)		(52,832)

Cash flows from financing activities
Repayment of advance match funded liabilities, net	(14,987)		(30,851)

Repayment of other financing liabilities	(28,423)		(18,566)
Proceeds from (repayment of) mortgage loan warehouse facilities, net	(125,956)		157,720
Proceeds from MSR financing facilities	114,220		64,098
Repayment of MSR financing facilities	(121,048)		(44,661)
Repayment of Senior notes	—		(319,156)
Proceeds from issuance of Senior notes and warrants	—		572,944
Repayment of senior secured term loan (SSTL) borrowings	—		(188,700)
Payment of debt issuance costs	(948)		(6,795)
Proceeds from sale of MSRs accounted for as secured financing	39,772		—
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)	583,899		287,830
Repayment of HMBS-related borrowings	(517,380)		(311,562)






Net cash provided by (used in) financing activities	(70,851)		162,301

Net increase (decrease) in cash, cash equivalents and restricted cash	81,539		(20,838)
Cash, cash equivalents and restricted cash at beginning of year	263,446		357,265
Cash, cash equivalents and restricted cash at end of period	$	344,985	$	336,427

Supplemental non-cash investing and financing activities:

Loans held for investment acquired at fair value	$	224,052	$	—
HMBS-related borrowings assumed at fair value	(219,509)		—
Holdback	(909)		—
Net cash paid to acquire loans held for investment	$	3,634	$	—

Recognition of gross right-of-use asset and lease liability:
Right-of-use asset	$	8,097	$	292
Lease liability	8,097		292
Transfers of loans held for sale to real estate owned (REO)	358		2,525
Transfer from loans held for investment to loans held for sale	3,138		901

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets and the unaudited consolidated statements of cash flows:


	March 31, 2022		March 31, 2021
Cash and cash equivalents	$	268,691	$	259,108
Restricted cash and equivalents:
Debt service accounts	13,119		15,930
Other restricted cash	63,175		61,389
Total cash, cash equivalents and restricted cash reported in the statements of cash flows	$	344,985	$	336,427

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Dollars in thousands, except per share data and unless otherwise indicated)


Note 1 - Organization and Basis of Presentation

Organization

Ocwen Financial Corporation (NYSE: OCN) (Ocwen, OFC, we, us and our) is a non-bank mortgage servicer and originator providing solutions to homeowners, investors and others through its primary operating subsidiary, PHH Mortgage Corporation (PMC). We are headquartered in West Palm Beach, Florida with offices and operations in the United States (U.S.), the United States Virgin Islands (USVI), India and the Philippines. Ocwen is a Florida corporation organized in February 1988.

Ocwen directly or indirectly owns all of the outstanding common stock of its operating subsidiaries, including PMC since its acquisition on October 4, 2018, Ocwen Financial Solutions Private Limited (OFSPL) and Ocwen USVI Services, LLC (OVIS). Effective May 3, 2021, Ocwen holds a 15% equity interest in MAV Canopy HoldCo I, LLC (MAV Canopy) that invests in mortgage servicing assets through its licensed mortgage subsidiary MSR Asset Vehicle LLC (MAV). See Note 10 - Investment in Equity Method Investee and Related Party Transactions for additional information.

We perform servicing activities related to our own MSR portfolio (primary) and on behalf of other servicers (subservicing), the largest being New Residential Investment Corp. (NRZ), and investors (primary and master servicing), including the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively referred to as GSEs), the Government National Mortgage Association (Ginnie Mae, and together with the GSEs, the Agencies) and private-label securitizations (PLS, or non-Agency). As a subservicer or primary servicer, we may be required to make advances for certain property tax and insurance premium payments, default and property maintenance payments and principal and interest payments on behalf of delinquent borrowers to mortgage loan investors before recovering them from borrowers. Most, but not all, of our subservicing agreements provide for us to be reimbursed for any such advances by the owner of the servicing rights. Advances made by us as primary servicer are generally recovered from the borrower or the mortgage loan investor. As master servicer, we collect mortgage payments from primary servicers and distribute the funds to investors in the mortgage-backed securities. To the extent the primary servicer does not advance the scheduled principal and interest, as master servicer we are responsible for advancing the shortfall, subject to certain limitations.

We source our servicing portfolio through multiple channels, including retail, wholesale, correspondent, flow MSR purchase agreements, the Agency Cash Window programs and bulk MSR purchases. We originate, sell and securitize conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency or GSE) loans and government-insured (Federal Housing Administration (FHA) or Department of Veterans Affairs (VA)) forward mortgage loans, generally with servicing retained. The GSEs or Ginnie Mae guarantee these mortgage securitizations. We originate and purchase Home Equity Conversion Mortgage (HECM) loans, or reverse mortgages, that are mostly insured by the FHA and we are an approved issuer of Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae.

We had a total of approximately 5,800 employees at March 31, 2022 of which approximately 3,300 were located in India and approximately 500 were based in the Philippines. Our operations in India and the Philippines primarily provide internal support services, principally to our loan servicing business and our corporate functions. Of our foreign-based employees, approximately 66% were engaged in supporting our loan servicing operations as of March 31, 2022.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions of the Securities and Exchange Commission (SEC) to Form 10-Q and SEC Regulation S-X, Article 10, Rule 10-01 for interim financial statements. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The results of operations and other data for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2022. The unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, income taxes and the provision for losses that may arise from contingencies including litigation proceedings. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.

Recently Adopted Accounting Standards

Earnings Per Share (ASC 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (ASC 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) (ASU 2021-04)

The amendments in this ASU provide the following guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic: (1) treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, (2) measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange and (3) recognize the effect of a modification or an exchange of a freestanding equity-classified written call option to compensate for goods or services in accordance with the guidance in ASC 718. In a multiple-element transaction (for example, one that includes both debt financing and equity financing), the total effect of the modification should be allocated to the respective elements in the transaction.

Our adoption of this standard on January 1, 2022 did not have a material impact on our consolidated financial statements.

Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)

This standard provides for optional expedients and other guidance regarding the accounting related to modifications of contracts, hedging relationships and other transactions affected by the phase-out of certain tenors of the London Inter-bank Offered Rate (LIBOR) by the end of 2021 (or June 30, 2023 for U.S. dollar LIBOR of certain tenors). This guidance is effective upon issuance in March 2020 through December 31, 2022 and allows for retrospective application to contract modifications as early as January 1, 2020. We elected to retrospectively adopt this ASU as of January 1, 2020 which resulted in no immediate impact on our consolidated financial statements. Although we do not have any hedge accounting relationships, many of our debt facilities and loan agreements incorporate LIBOR as the referenced interest rate. Some of these facilities and loan agreements either matured prior to the end of 2021 or have terms in place that provide for an alternative to LIBOR upon its phase-out. We do not anticipate that this standard will have a material impact on our consolidated financial statements.

Accounting Standards Issued but Not Yet Adopted

Business Combinations (ASC 805) - Accounting for Contract Assets and Contract Liabilities (ASU 2021-08)

The amendments in this Update apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations— Overall. The amendments in this ASU are issued to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with generally accepted accounting principles (GAAP)).

The amendments in this ASU are effective for us on January 1, 2023. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.


Note 2 – Securitizations and Variable Interest Entities

We securitize, sell and service forward and reverse residential mortgage loans and regularly transfer financial assets in connection with asset-backed financing arrangements. We have aggregated these transfers of financial assets and asset-backed

financing arrangements using special purpose entities (SPEs) or variable interest entities (VIEs) into the following groups: (1) securitizations of residential mortgage loans, (2) financings of loans held for sale, (3) financings of advances and (4) MSR financings. Financing transactions that do not use SPEs or VIEs are disclosed in Note 13 – Borrowings.

From time to time, we may acquire beneficial interests issued in connection with mortgage-backed securitizations where we may also be the master and/or primary servicer. These beneficial interests consist of subordinate and residual interests acquired from third-parties in market transactions. We consolidate the VIE when we conclude we are the primary beneficiary.

Securitizations of Residential Mortgage Loans

Transfers of Forward Loans

We sell or securitize forward loans that we originate or purchase from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or Ginnie Mae. Securitization typically occurs within 30 days of loan closing or purchase. We act only as a fiduciary and do not have a variable interest in the securitization trusts. As a result, we account for these transactions as sales upon transfer.

The following table presents a summary of cash flows received from and paid to securitization trusts related to transfers of loans accounted for as sales that were outstanding:


	Three Months Ended March 31,
	2022		2021
Proceeds received from securitizations	$	3,588,272	$	3,248,918
Servicing fees collected (1)	21,669		13,178
Purchases of previously transferred assets, net of claims reimbursed	(2,030)		(3,239)
	$	3,607,911	$	3,258,857

(1)We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the unaudited consolidated statements of operations.

In connection with these transfers, we retained MSRs of $45.8 million and $34.3 million during the three months ended March 31, 2022 and 2021, respectively. We securitize forward and reverse residential mortgage loans involving the GSEs and loans insured by the FHA or VA through Ginnie Mae.

Certain obligations arise from the agreements associated with our transfers of loans. Under these agreements, we may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor or insurer for losses incurred due to material breach of contractual representations and warranties.

The following table presents the carrying amounts of our assets that relate to our continuing involvement with forward loans that we have transferred with servicing rights retained as well as an estimate of our maximum exposure to loss including the UPB of the transferred loans:


	March 31, 2022		December 31, 2021
Carrying value of assets
MSRs, at fair value	$	449,129	$	360,830
Advances	103,416		151,166
UPB of loans transferred (1)	34,717,859		31,864,769
Maximum exposure to loss	$	35,270,404	$	32,376,765

(1)Includes $5.5 billion and $5.6 billion of loans delivered to Ginnie Mae as of March 31, 2022 and December 31, 2021, respectively, and includes loan modifications delivered through the Ginnie Mae Early Buyout Program (EBO).

At March 31, 2022 and December 31, 2021, 3.0% and 3.6%, respectively, of the transferred residential loans that we service were 60 days or more past due, including 60 days or more past due loans under forbearance. This includes 10.7% and 12.0%, respectively, of loans delivered to Ginnie Mae that are 60 days or more past due.

Transfers of Reverse Mortgages

We pool HECM loans into HMBS that we sell into the secondary market with servicing rights retained or we sell the loans to third parties with servicing rights released. We have determined that loan transfers in the HMBS program do not meet the definition of a participating interest and the servicing requirements require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk and incidental credit risk. As a result, the transfers of the HECM loans do not qualify for sale accounting, and therefore, we account for these transfers as financings. Under this accounting treatment, the HECM loans are

classified as Loans held for investment, at fair value, on our unaudited consolidated balance sheets. Holders of participating interests in the HMBS have no recourse against the assets of Ocwen, except with respect to standard representations and warranties and our contractual obligation to service the HECM loans and the HMBS.

Financing of Loans Held for Sale using SPEs

We entered into a warehouse mortgage loan financing facility with a third-party lender involving an SPE (trust). This facility is structured as a gestation repurchase facility whereby Agency mortgage loans are transferred by PMC to the trust for collateralization purposes. We have designed the trust to facilitate the third party financing facility and have determined that the trust is a VIE for which we are the primary beneficiary. Therefore, we have included the trust in our consolidated financial statements.

The table below presents the carrying value and classification of the assets and liabilities of the loans held for sale financing facility:


	March 31, 2022		December 31, 2021
Mortgage loans (Loans held for sale, at fair value)	$	241,676	$	462,144



Outstanding borrowings (Mortgage loan warehouse facilities) (1)	280,271		459,344

(1) Additional cash collateral was posted at March 31, 2022 (reported within restricted cash) due to timing of loan sales.

Financings of Advances using SPEs

Match funded advances, i.e., advances that are pledged as collateral to our advance facilities, result from our transfers of residential loan servicing advances to SPEs in exchange for cash. We consolidate these SPEs because we have determined that we are the primary beneficiary of the SPEs. Through wholly-owned subsidiaries we hold the sole equity interests in the SPEs and service the mortgage loans that generate the advances. These SPEs issue debt supported by collections on the transferred advances, and we refer to this debt as Advance match funded liabilities. Holders of the debt issued by the SPEs have recourse only to the assets of the SPE for satisfaction of the debt.

The table below presents the carrying value and classification of the assets and liabilities of the advance financing facilities:


	March 31, 2022		December 31, 2021
Match funded advances (Advances, net)	$	578,611	$	587,059
Debt service accounts (Restricted cash)	6,574		7,687
Unamortized deferred lender fees (Other assets)	872		1,305
Prepaid interest (Other assets)	194		225
Advance match funded liabilities	497,310		512,297

MSR Financings using SPEs

We established two SPEs (trusts) in connection with a third-party financing facility secured by certain Fannie Mae and Freddie Mac MSRs (Agency MSRs). We determined that the trusts are VIEs for which we are the primary beneficiary. Therefore, we have included the trusts in our consolidated financial statements. We have the power to direct the activities of the VIEs that most significantly impact the VIE’s economic performance given that we are the servicer of the Agency MSRs that result in cash flows to the trusts. In addition, we have designed the trusts at inception to facilitate the third-party funding facility under which we have the obligation to absorb the losses of the VIEs that could be potentially significant to the VIEs.

The table below presents the carrying value and classification of the assets and liabilities of the Agency MSR financing facility:


	March 31, 2022		December 31, 2021

MSRs pledged (MSRs, at fair value)	$	582,076	$	630,605
Unamortized deferred lender fees (Other assets)	748		1,495
Debt service account (Restricted cash)	103		104
Outstanding borrowings (MSR financing facilities, net)	282,351		317,523

In 2019, we issued Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 Class A (PLS Notes) secured by certain of PMC’s private label MSRs (PLS MSRs). On March 15, 2022, we replaced the existing PLS Notes with a new series of notes,

Ocwen Excess Spread-Collateralized Notes, Series 2022-PLS1 Class A, at an initial principal amount of $75.0 million. An SPE, PMC PLS ESR Issuer LLC (PLS Issuer), was established in this connection as a wholly owned subsidiary of PMC. Ocwen guarantees the obligations of PLS Issuer under the facility.

We determined that PLS Issuer is a VIE for which we are the primary beneficiary. Therefore, we have included PLS Issuer in our consolidated financial statements. We have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance given that we are the servicer of the MSRs that result in cash flows to PLS Issuer. In addition, PMC has designed PLS Issuer at inception to facilitate the funding for general corporate purposes. Separately, in return for the participation interests, PMC received the proceeds from issuance of the PLS Notes. PMC is the sole member of PLS Issuer, thus PMC has the obligation to absorb the losses of the VIE that could be potentially significant to the VIE.

The table below presents the carrying value and classification of the assets and liabilities of the PLS Notes facility:


	March 31, 2022		December 31, 2021

MSRs pledged (MSRs, at fair value)	$	112,992	$	99,833
Debt service account (Restricted cash)	2,123		1,968
Outstanding borrowings (MSR financing facilities, net)	72,838		41,663
Unamortized debt issuance costs (MSR financing facilities, net)	996		413


Note 3 – Fair Value

Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.

The carrying amounts and the estimated fair values of our financial instruments and certain of our nonfinancial assets measured at fair value on a recurring or non-recurring basis or disclosed, but not measured, at fair value are as follows:


		March 31, 2022				December 31, 2021
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Loans held for sale
Loans held for sale, at fair value (a) (e)	3, 2	$	716,024	$	716,024	$	917,534	$	917,534
Loans held for sale, at lower of cost or fair value (b)	3	9,027		9,027		10,993		10,993
Total Loans held for sale		$	725,051	$	725,051	$	928,527	$	928,527

Loans held for investment
Loans held for investment - Reverse mortgages (a)	3	$	7,451,555	$	7,451,555	$	7,199,762	$	7,199,762
Loans held for investment - Restricted for securitization investors (a)	3	7,722		7,722		7,879		7,879
Total loans held for investment		$	7,459,277	$	7,459,277	$	7,207,641	$	7,207,641


		March 31, 2022				December 31, 2021
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value

Advances, net (c)	3	$	729,973	$	729,973	$	772,433	$	772,433

Receivables, net (c)	3	213,460		213,460		180,707		180,707
Mortgage-backed securities (a)	3	—		—		1		1

Corporate bonds (a)	2	211		211		211		211


Financial liabilities:
Advance match funded liabilities (c)	3	$	497,310	$	495,880	$	512,297	$	511,994
Financing liabilities:
HMBS-related borrowings (a)	3	$	7,118,844	$	7,118,844	$	6,885,022	$	6,885,022
Other financing liabilities
Financing liability -Transferred MSR liability (a)	3	864,315		864,315		797,084		797,084
Financing liability - Owed to securitization investors (a)	3	7,721		7,721		7,879		7,879

Total Other financing liabilities		872,036		872,036		804,963		804,963



Mortgage loan warehouse facilities (c)	3	959,121		959,121		1,085,076		1,085,076
MSR financing facilities (c) (d)	3	892,635		870,538		900,760		873,820

Senior notes:
PMC Senior secured notes due 2026 (c) (d)	2	392,928		374,528		392,555		413,472
OFC Senior secured notes due 2027 (c) (d)	3	224,204		236,272		222,242		261,455
Total Senior notes		$	617,132	$	610,800	$	614,797	$	674,927

Derivative financial instrument assets (liabilities)
Interest rate lock commitments (IRLCs) (a)	3	$	5,673	$	5,673	$	18,085	$	18,085
Forward trades - Loans held for sale (a)	1	8		8		364		364
TBA / Forward mortgage-backed securities (MBS) trades (a)	1	(3,952)		(3,952)		(240)		(240)
Interest rate swap futures (a)	1	—		—		1,734		1,734

Option contracts (a)	2	(4,666)		(4,666)		(277)		(277)
Other (a)	3	(677)		(677)		(1,070)		(1,070)

MSRs (a)	3	$	2,323,281	$	2,323,281	$	2,250,147	$	2,250,147

(a)Measured at fair value on a recurring basis.

(b)Measured at fair value on a non-recurring basis.

(c)Disclosed, but not measured, at fair value.

(d)The carrying values are net of unamortized debt issuance costs and discount. See Note 13 – Borrowings for additional information.

(e)Loans repurchased from Ginnie Mae securitizations with a fair value of $230.4 million and $220.9 million at March 31, 2022 and December 31, 2021, respectively, are classified as Level 3. The remaining balance of loans held for sale at fair value is classified as Level 2.

The following tables present a reconciliation of the changes in fair value of Level 3 assets and liabilities that we measure at fair value on a recurring basis:


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitization Investors		Loans Held for Sale - Fair Value		IRLCs
Three months ended March 31, 2022
Beginning balance	$	7,879	$	(7,879)	$	220,940	$	18,085
Cumulative effect of fair value election	—		—		—		—
Purchases, issuances, sales and settlements
Purchases	—		—		60,695		—
Issuances (1)	—		—		—		79,625

Sales	—		—		(47,802)		—
Settlements	(157)		157		—		—
Transfers (to) from:

Loans held for sale, at fair value (1)	—		—		—		(57,505)

Receivables, net	—		—		(115)		—

	(157)		157		12,778		22,120



Change in fair value included in earnings (1)	—		—		(3,275)		(34,532)



Transfers in and / or out of Level 3	—		—		—		—
Ending balance	$	7,722	$	(7,722)	$	230,443	$	5,673

(1)IRLC activity (issuances and transfers) represent changes in fair value included in earnings. This activity is presented on a gross basis in the table for disclosure purposes. Total net change in fair value included in earnings attributed to IRLCs for the three months ended March 31, 2022 is a loss of $12.4 million. Note 15 – Derivative Financial Instruments and Hedging Activities.


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitization Investors		Loans Held for Sale - Fair Value		Mortgage-Backed Securities		IRLCs
Three months ended March 31, 2021
Beginning balance	$	9,770	$	(9,770)	$	51,072	$	2,019	$	22,706
Purchases, issuances, sales and settlements
Purchases	—		—		58,916		—		—
Issuances	—		—		—		—		134,370

Sales	—		—		(32,889)		—		—
Settlements	(950)		950		—		—		—
Transfers (to) from:

Loans held for sale, at fair value	—		—		—		—		(128,564)
Other assets	—		—		(96)		—		—

	(950)		950		25,931		—		5,806


Change in fair value included in earnings	—		—		(5,640)		(406)		(13,923)
Calls and other	—		—		4		—		—


Transfers in and / or out of Level 3	—		—		—		—		—
Ending balance	$	8,820	$	(8,820)	$	71,367	$	1,613	$	14,589

A reconciliation from the beginning balances to the ending balances of Loans Held for Investment and HMBS-related borrowings, MSRs and Pledged liabilities that we measure at fair value on a recurring and non-recurring basis is disclosed in Note 5 - Reverse Mortgages, Note 7 – Mortgage Servicing and Note 8 — MSR Transfers Not Qualifying for Sale Accounting, respectively.

During the three months ended March 31, 2022, there have been no changes to the methodologies that we use in estimating fair values or classifications under the valuation hierarchy as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The significant unobservable assumptions that we make to estimate the fair value of significant assets and liabilities classified as Level 3 and measured at fair value on a recurring or non-recurring basis are provided below.

Loans Held for Sale

The fair value of loans we purchased from Ginnie Mae guaranteed securitizations is estimated using both observable and unobservable inputs, including published forward Ginnie Mae prices or existing sale contracts, as well as estimated default, prepayment, and discount rates. The significant unobservable input in estimating fair value is the estimated default rate. Accordingly, these repurchased Ginnie Mae loans are classified as Level 3 within the valuation hierarchy.

Loans Held for Investment - Reverse Mortgages

Reverse mortgage loans held for investment are carried at fair value and classified as Level 3 within the valuation hierarchy. Significant unobservable assumptions include conditional prepayment rate and discount rate. The conditional prepayment rate assumption displayed in the table below is inclusive of voluntary (repayment or payoff) and involuntary (inactive/delinquent status and default) prepayments. The discount rate assumption is primarily based on an assessment of current market yields on reverse mortgage loan and tail securitizations, expected duration of the asset and current market interest rates.


Significant unobservable assumptions	March 31, 2022		December 31, 2021
Life in years
Range	1.0 to 8.4		1.0 to 8.2
Weighted average	5.4		5.7
Conditional prepayment rate, including voluntary and involuntary prepayments
Range	11.9% to 46.4%		11.2% to 36.6%
Weighted average	16.8	%	16.0	%
Discount rate	3.6	%	2.6	%

Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. The effects of changes in the assumptions used to value the securitized loans held for investment, excluding future draw commitments, are partially offset by the effects of changes in the assumptions used to value the HMBS-related borrowings that are associated with these loans.

MSRs

MSRs are carried at fair value and classified within Level 3 of the valuation hierarchy. The fair value is equal to the fair value mark provided by the third-party valuation experts, without adjustment, except in the event we have a potential or completed sale, including transactions where we have executed letters of intent, in which case the fair value of the MSRs is recorded at the estimated sale price.

A change in the valuation inputs or assumptions may result in a significantly higher or lower fair value measurement. Changes in market interest rates predominantly impact the fair value of Agency MSRs via prepayment speeds by altering the borrower refinance incentive and the non-Agency MSRs due to the impact on advance funding costs. The significant unobservable assumptions used in the valuation of these MSRs include prepayment speeds, delinquency rates, cost to service and discount rates.


Significant unobservable assumptions	March 31, 2022						December 31, 2021
	Agency			Non-Agency			Agency			Non-Agency
Weighted average prepayment speed	7.2		%	12.1		%	8.5		%	12.1		%
Weighted average lifetime delinquency rate	1.1		%	11.1		%	1.2		%	11.9		%


Weighted average discount rate	8.4		%	10.7		%	8.5		%	11.2		%
Weighted average cost to service (in dollars)	$	70		$	205		$	71		$	205

Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates, an improving housing market or expanded product availability (as prepayments increase) and increase in periods of rising interest rates, a deteriorating housing market or reduced product

availability (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs as of March 31, 2022 given hypothetical increases in lifetime prepayments and yield assumptions:


Adverse change in fair value	10%		20%
Weighted average prepayment speeds	$	(57,105)	$	(111,271)
Weighted average discount rate	(57,701)		(111,293)

Financing Liabilities

HMBS-Related Borrowings

HMBS-related borrowings are carried at fair value and classified as Level 3 within the valuation hierarchy. These borrowings are not actively traded, and therefore, quoted market prices are not available.

Significant unobservable assumptions include yield spread and discount rate. The yield spread and discount rate assumption for these liabilities are primarily based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates.


Significant unobservable assumptions	March 31, 2022		December 31, 2021
Life in years
Range	1.0 to 8.4		1.0 to 8.2
Weighted average	5.4		5.7
Conditional prepayment rate
Range	11.9% to 46.4%		11.2% to 36.6%
Weighted average	16.8	%	16.0	%
Discount rate	3.5	%	2.5	%

Significant increases or decreases in any of these assumptions in isolation could result in a significantly higher or lower fair value, respectively. The effects of changes in the assumptions used to value the HMBS-related borrowings are partially offset by the effects of changes in the assumptions used to value the associated pledged loans held for investment, excluding future draw commitments.

Pledged MSR Liabilities

Pledged MSR liabilities are carried at fair value and classified as Level 3 within the valuation hierarchy. We determine the fair value of the pledged MSR liability consistent with the mid-point of the range of prices provided by third-party valuation experts for the related MSR, considering retained cash flows.


Significant unobservable assumptions	March 31, 2022			December 31, 2021
Weighted average prepayment speed	10.4		%	10.9		%
Weighted average delinquency rate	7.8		%	8.8		%


Weighted average discount rate	10.0		%	10.5		%
Weighted average cost to service (in dollars)	$	178		$	182

Significant increases or decreases in these assumptions in isolation would result in a significantly higher or lower fair value.

Derivative Financial Instruments

IRLCs are classified as Level 3 assets as fallout rates were determined to be significant unobservable assumptions.


Note 4 – Loans Held for Sale


Loans Held for Sale - Fair Value	Three Months Ended March 31,
	2022		2021
Beginning balance	$	917,534	$	366,364
Originations and purchases	3,472,610		3,333,901
Proceeds from sales	(3,570,863)		(3,169,015)
Principal collections	(29,465)		(5,418)
Transfers from (to):
Loans held for investment, at fair value	3,138		901

Receivables, net	(701)		(8,633)
REO (Other assets)	—		(2,052)
Gain (loss) on sale of loans	(72,302)		(13,732)
Capitalization of advances on Ginnie Mae modifications	7,303		3,394
Increase (decrease) in fair value of loans	(12,270)		(5,256)
Other	1,040		360
Ending balance (1)	$	716,024	$	500,814

(1)At March 31, 2022 and 2021, the balances include $(16.7) million and $(12.0) million, respectively, of fair value adjustments.


Loans Held for Sale - Lower of Cost or Fair Value	Three Months Ended March 31,
	2022		2021
Beginning balance - before Valuation Allowance	$	15,365	$	27,652

Proceeds from sales	(336)		(4,840)
Principal collections	(228)		(214)
Transfers from (to):
Receivables, net	(1,103)		(224)
REO (Other assets)	(358)		(473)

Gain on sale of loans	4		389
Other	3		181
Ending balance - before Valuation Allowance	13,347		22,471

Beginning balance - Valuation Allowance	$	(4,372)	$	(6,180)
(Provision for) reversal of valuation allowance	(71)		703
Transfer to Liability for indemnification obligations (Other liabilities)	123		15


Ending balance - Valuation Allowance	(4,320)		(5,462)

Ending balance, net	$	9,027	$	17,009


Gain (loss) on Loans Held for Sale, Net	Three Months Ended March 31,
	2022		2021
Gain on sales of loans, net
MSRs retained on transfers of forward mortgage loans	$	45,803	$	34,260

Gain (loss) on sale of forward mortgage loans (1)	(72,296)		(18,567)
Gain on sale of repurchased Ginnie Mae loans (1)	599		4,900

	(25,894)		20,593
Change in fair value of IRLCs	(12,057)		(8,618)
Change in fair value of loans held for sale	(11,686)		(4,981)
Gain (loss) on economic hedge instruments (2)	47,107		—

Other	(674)		(1,273)
	$	(3,206)	$	5,721

(1)Realized gain (loss) on sale of loans, excluding retained MSRs.

(2)Excludes gains of $13.3 million and $35.4 million on inter-segment economic hedge derivatives presented within MSR valuation adjustments, net for the three months ended March 31, 2022 and 2021, respectively. Third-party derivatives are hedging the net exposure of MSR and pipeline, and the change in fair value of derivatives are reported within MSR valuation adjustments, net. Inter-segment derivatives are established to transfer risk and allocate hedging gains/losses to the pipeline separately from the MSR portfolio. Refer to Note 18 – Business Segment Reporting.

Note 5 - Reverse Mortgages


	Three Months Ended March 31,
	2022				2021
	Loans Held for Investment - Reverse Mortgages		HMBS - Related Borrowings (2)		Loans Held for Investment - Reverse Mortgages		HMBS - Related Borrowings (1)
Beginning balance	$	7,199,762	$	(6,885,022)	$	6,997,127	$	(6,772,711)

Originations	620,237		—		326,735		—
Securitization of HECM loans accounted for as a financing	—		(583,899)		—		(287,830)
Additional proceeds from securitization of HECM loans and tails	—		(12,200)		—		(12,565)
Acquisition (1)	211,258		(209,057)		—		—
Repayments (principal payments received)	(518,818)		517,380		(314,153)		311,562
Transfers to:
Loans held for sale, at fair value	(3,154)		—		(901)		—
Receivables, net	(12,462)		—		(116)		—
Other assets	(132)		—		(111)		—
Change in fair value included in earnings (3)	(45,136)		53,954		35,793		(16,651)
Ending balance	$	7,451,555	$	(7,118,844)	$	7,044,374	$	(6,778,195)
Securitized loans (pledged to HMBS-Related Borrowings)	$	7,202,045	$	(7,118,844)	$	6,874,880	$	(6,778,195)
Unsecuritized loans	249,510				169,494
Total	$	7,451,555			$	7,044,374

(1)During the first quarter of 2022, we purchased a reverse mortgage servicing portfolio of HECM loans securitized in Ginnie Mae pools. As the Ginnie Mae HMBS program does not qualify for sale accounting, the transaction conveyed the HECM loans and associated HMBS-related borrowings to us. We have accounted for this transaction as a secured financing, as a purchase of loans held for investment and assumption of an HMBS securitization liability for the obligation to Ginnie Mae.

(2)Represents amounts due to the holders of beneficial interests in Ginnie Mae guaranteed HMBS that did not qualify for sale accounting treatment of HECM loans. Under this accounting treatment, the HECM loans securitized with Ginnie Mae remain on our consolidated balance sheets and the proceeds from the sale are recognized as a financing liability, which is recorded at fair value consistent with the related HECM loans. The beneficial interests in Ginnie Mae guaranteed HMBS have no maturity dates, and the borrowings mature as the

related loans are repaid. The interest rate is the pass-through rate of the loans less applicable margin. See Note 2 – Securitizations and Variable Interest Entities

(3)See further breakdown in the table below.


Reverse Mortgage Revenue, net	Three Months Ended March 31,
	2022		2021
Gain on new originations (1)	$	20,671	$	17,107
Change in fair value of securitized loans held for investment and HMBS-related borrowings, net	(11,853)		2,035

Change in fair value included in earnings, net (2)	8,818		19,142
Loan fees and other	4,292		2,684
	$	13,110	$	21,826

(1)Includes the changes in fair value of newly originated loans held for investment in the period through securitization date.

(2)See breakdown between loans held-for-investment and HMBS - related borrowings in the table above.


Note 6 – Advances


	March 31, 2022		December 31, 2021
Principal and interest	$	222,815	$	228,041
Taxes and insurance	355,288		381,025
Foreclosures, bankruptcy, REO and other	158,767		170,385
	736,870		779,451
Allowance for losses	(6,897)		(7,018)
Advances, net	$	729,973	$	772,433

The following table summarizes the activity in net advances:


	Three Months Ended March 31,
	2022		2021
Beginning balance - before Allowance for Losses	$	779,451	$	834,512



New advances	197,252		203,400
Sales of advances	(641)		(133)
Collections of advances and other	(239,192)		(244,942)


Ending balance - before Allowance for Losses	736,870		792,837

Beginning balance - Allowance for Losses	$	(7,018)	$	(6,273)
Provision expense	(1,764)		(1,502)
Net charge-offs and other	1,886		1,616
Ending balance - Allowance for Losses	(6,897)		(6,159)

Ending balance, net	$	729,973	$	786,678


Note 7 – Mortgage Servicing


MSRs – At Fair Value	Three Months Ended March 31,
	2022						2021
	Agency		Non-Agency		Total		Agency		Non-Agency		Total
Beginning balance	$	1,571,837	$	678,310	$	2,250,147	$	578,957	$	715,860	$	1,294,817


Sales and other transfers	(149,311)		(24)		(149,335)		—		—		—
Additions:
Recognized on the sale of residential mortgage loans	45,803		—		45,803		34,260		—		34,260
Purchase of MSRs	46,799		—		46,799		36,778		—		36,778
Servicing transfers and adjustments	—		(823)		(823)		29		(557)		(528)
Changes in fair value:
Changes in valuation inputs or assumptions	194,476		9,044		203,520		82,486		1,529		84,015
Realization of expected cash flows	(47,674)		(25,156)		(72,830)		(23,847)		(25,278)		(49,125)
Ending balance	$	1,661,930	$	661,351	$	2,323,281	$	708,663	$	691,554	$	1,400,217

MSR UPB and Fair Value


	March 31, 2022				December 31, 2021				March 31, 2021






	Fair Value		UPB		Fair Value		UPB		Fair Value		UPB
Owned MSRs	$	1,435,180	$	115,724,529	$	1,422,546	$	127,919,800	$	849,853	$	91,284,985
NRZ transferred MSRs (1) (2)	545,316		51,533,000		558,940		53,652,843		550,364		61,841,181
MAV transferred MSRs (1)	342,785		26,759,000		268,661		24,018,904		—		—
Total	$	2,323,281	$	194,016,529	$	2,250,147	$	205,591,547	$	1,400,217	$	153,126,166

(1)MSRs subject to sale agreements with NRZ and MAV that do not meet sale accounting criteria. During the three months ended March 31, 2022 , we transferred MSRs with a UPB of $3.5 billion to MAV. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting.

(2)At March 31, 2022, the UPB of MSRs transferred to NRZ for which title is retained by Ocwen was $11.7 billion and the UPB of MSRs transferred to NRZ for which title has passed was $39.8 billion.

We purchased MSRs with a UPB of $4.1 billion and $6.0 billion from unrelated third-parties during the three months ended March 31, 2022 and 2021, respectively. We sold MSRs with a UPB of $11.1 billion and $7.2 million during the three months ended March 31, 2022 and 2021, respectively, to unrelated third parties. Sales of MSRs during the three months ended March 31, 2022 includes an $11.1 billion bulk sale of GSE MSRs which had not yet transferred from our servicing system as of March 31, 2022, and for which PMC is performing interim subservicing.

At March 31, 2022, the S&P Global Ratings, Inc.’s (S&P) servicer ratings outlook for PMC is stable. On June 29, 2021, S&P affirmed PMC’s servicer rating as Average, raising management and organization ranking to Above Average. In addition, S&P raised PMC’s master servicer rating from Average to Above Average reflecting the industry experience of PMC’s management, multiple levels of internal controls to monitor operations, and resolution of regulatory actions, amongst other factors mentioned by S&P. On September 28, 2021, Moody’s upgraded the servicer quality (SQ) assessment for PMC as a master servicer of residential mortgage loans from SQ3 to SQ3+, reflecting solid reporting and remitting processes and proactive servicer oversight. On March 24, 2020, Fitch Ratings, Inc. (Fitch) placed all U.S Residential Mortgage Backed Securities (RMBS) servicer ratings on Outlook Negative, resulting from a rapidly evolving economic and operating environment due to the sudden impact of the COVID-19 virus. On April 28, 2021, Fitch affirmed PMC’s servicer ratings and revised its outlook from Negative to Stable as PMC’s performance in this evolving environment has not raised any elevated concerns. According to Fitch, the affirmation and stable outlook reflected PMC’s diligent response to the coronavirus pandemic and its impact on servicing operations, effective enterprise-wide risk environment and compliance management framework, satisfactory loan servicing performance metrics, special servicing expertise, and efficient servicing technology. The ratings also consider the financial condition of PMC’s parent, OFC.


Servicing Revenue	Three Months Ended March 31,
	2022		2021
Loan servicing and subservicing fees
Servicing	$	88,535	$	63,892
Subservicing	14,678		3,487
MAV (1)	16,623		—
NRZ (1)	67,146		80,385
	186,983		147,764
Ancillary income
Late charges	10,020		9,231
Reverse subservicing ancillary fees	3,086		—
Recording fees	3,250		3,945
Loan collection fees	2,949		2,949

Boarding and deboarding fees	1,761		3,019
Custodial accounts (float earnings)	983		1,008
GSE forbearance fees	184		566
Other, net	3,408		3,256
	25,640		23,974
	$	212,623	$	171,738

(1)Includes servicing and subservicing fees related to transferred MSRs. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting.

Float balances (balances in custodial accounts, which represent collections of principal and interest that we receive from borrowers) are held in escrow by unaffiliated banks and are excluded from our unaudited consolidated balance sheets. Float balances amounted to $2.1 billion, $2.1 billion and $2.4 billion at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.


Note 8 — MSR Transfers Not Qualifying for Sale Accounting

MSRs transferred or sold in transactions which do not qualify for sale accounting treatment are accounted for as secured financings. Until such time as the transaction qualifies as a sale for accounting purposes, we continue to recognize the MSRs and related financing liability on our unaudited consolidated balance sheets, as well as the full amount of servicing fee collected as revenue and the servicing fee remitted as pledged MSR liability expense in our unaudited consolidated statements of operations. In addition, changes in fair value of the transferred MSRs are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations, while changes in fair value of the related MSR financing liability are reported in Pledged MSR liability expense.

In 2021 and 2022, PMC entered into agreements to sell MSR portfolios to MAV on a bulk and flow basis. In each such agreement, PMC has been retained as subservicer for the sold portfolio in accordance with the terms of the subservicing agreement entered into on May 3, 2021. The transactions do not qualify for sale accounting treatment predominantly due to the termination restrictions of the subservicing agreement. See Note 10 - Investment in Equity Method Investee and Related Party Transactions.

Starting in 2012, Ocwen and PMC entered into agreements to sell MSRs or Rights to MSRs and the related servicing advances to NRZ, and in all cases have been retained by NRZ as subservicer. Due to the length of the non-cancellable term of the subservicing agreements, the transactions did not qualify for sale accounting treatment which resulted in such transactions being accounted for as secured financings. In the case of Rights to MSRs transactions with NRZ, legal title was retained by Ocwen, causing the transactions to be accounted for as secured financings.

The following tables present the activity of the pledged MSR liability recorded in connection with the MSR transfer agreements with NRZ and MAV that do not qualify for sale accounting.


	Three Months Ended March 31,
	2022						2021
Pledged MSR Liability	Original Rights to MSRs Agreements - NRZ		MAV Agreements (2)		Total		Original Rights to MSRs Agreements - NRZ
Beginning Balance	$	558,940	$	238,144	$	797,084	$	566,952

MSR transfers	(10)		40,606		40,597		—
Changes in fair value (3)	6,798		48,661		55,459		1,551


Runoff and settlement	(19,863)		(8,402)		(28,265)		(17,616)
Calls (1)	(560)		—		(560)		(523)
Ending Balance	$	545,306	$	319,009	$	864,315	$	550,364

(1)Represents the carrying value of MSRs in connection with call rights exercised by NRZ, or by Ocwen at NRZ’s direction. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.

(2)The fair value of the Pledged MSR liability differs from the fair value of the associated transferred MSR asset mostly due to the portion of ancillary income that is retained by PMC (shared between PMC and MAV) and other contractual cash flows under the terms of the subservicing agreement. As the MSR sales to MAV do not achieve sale accounting, the MSR asset transferred remains on the consolidated balance sheet and the proceeds from the sale are initially recognized as a financing liability (Pledged MSR liability), which is recorded at fair value with changes in fair value reported in Pledged MSR liability expense.

(3)The changes in fair value of the MAV Pledged MSR Liability include a $14.1 million loss associated with the amendment to the MAV Subservicing Agreement in March 2022, resulting in lower contractually retained ancillary income by PMC. See Note 10 - Investment in Equity Method Investee and Related Party Transactions.

The following table presents selected assets and liabilities recorded on our unaudited consolidated balance sheets in connection with the MSR transfer agreements with NRZ that do not qualify for sale accounting (refer to Note 9 – Receivables and Note 14 – Other Liabilities for receivables and other liabilities, respectively, related to MAV):


	March 31, 2022		December 31, 2021
Balance Sheet
NRZ - Transferred MSRs, at fair value	$	545,306	$	558,940




Other financing liability - Pledged MSR liability, at fair value
NRZ - Original Rights to MSRs Agreements	545,306		558,940





Due from NRZ (Receivables) - Advance funding, subservicing fees and reimbursable expenses	1,814		3,781

Due to NRZ (Other liabilities)	$	75,548	$	76,590

The following tables present selected items in our unaudited consolidated statements of operations in connection with the MSR transfer agreements with NRZ and MAV that do not qualify for sale accounting.


	Three Months Ended March 31,
	2022		2021
Statements of Operations
Servicing fees
Servicing fees collected on behalf of NRZ	$	67,146	$	80,385
Servicing fees collected on behalf of MAV	15,733		—
	$	82,879	$	80,385

Pledged MSR liability expense
NRZ (see further details below)	$	32,382	$	37,850
MAV (see further details below)	54,515		—
	$	86,897	$	37,850


NRZ Pledged MSR liability expense:	Three Months Ended March 31,
	2022		2021
Servicing fees collected on behalf of NRZ	$	67,146	$	80,385
Less: Subservicing fee retained by Ocwen	19,367		23,991
Net servicing fees remitted to NRZ	47,779		56,394

Less: Reduction (increase) in Pledged MSR liability
Changes in fair value due to valuation inputs or assumptions:
Original Rights to MSRs Agreements	(6,798)		(1,551)



Runoff and settlement:
Original Rights to MSRs Agreements	19,863		17,616




Other	2,332		2,479

Pledged MSR liability expense - NRZ	$	32,382	$	37,850


MAV Pledged MSR liability expense:	Three Months Ended March 31, 2022
Servicing fees collected on behalf of MAV	$	15,733
Less: Subservicing fee retained by Ocwen	2,092
Net servicing fees remitted to MAV	13,641

Less: Reduction (increase) in Pledged MSR liability
Changes in fair value due to valuation inputs or assumptions	(48,661)
Runoff and settlement	8,403
	(40,258)


Other (1)	(616)

Pledged MSR liability expense - MAV	$	54,515

(1)Includes $0.6 million of early payment protection associated with the transfer (which did not qualify for sale accounting) of MSR portfolios by PMC to MAV.

NRZ - Ocwen Transactions

Prior to the transfer of legal title under the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements), Ocwen agreed to service the mortgage loans underlying the MSRs on the economic terms set forth in the Original Rights to MSRs Agreements.

After the transfer of legal title as contemplated under the Original Rights to MSRs Agreements, Ocwen was to service the mortgage loans underlying the MSRs as subservicer on substantially the same economic terms.

On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in the Original Rights to MSRs Agreements. The July 23, 2017 agreements, as amended, include a Master Agreement, a Transfer Agreement and the Subservicing Agreement between Ocwen and New Residential Mortgage LLC (NRM), a subsidiary of NRZ, relating to non-Agency loans (the NRM Subservicing Agreement) (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the remaining MSRs that were subject to the Original Rights to MSRs Agreements and under which Ocwen would subservice mortgage loans underlying the MSRs for an initial term ending in July 2022 (the Initial Term).

On January 18, 2018, the parties entered into new agreements (including a Servicing Addendum) regarding the Rights to MSRs related to MSRs that remained subject to the Original Rights to MSRs Agreements as of January 1, 2018 and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Under the new agreements, following receipt of the required consents and transfer of the MSRs, Ocwen subservices the mortgage loans underlying the transferred MSRs pursuant to the 2017 Agreements and the August 2018 subservicing agreement with NewRez LLC dba Shellpoint Mortgage Servicing (Shellpoint) described below.

On August 17, 2018, Ocwen and NRZ entered into certain amendments (i) to the New RMSR Agreements to include Shellpoint, a subsidiary of NRZ, as a party to which legal title to the MSRs could be transferred after related consents are received, (ii) to add a Subservicing Agreement between Ocwen and Shellpoint relating to non-Agency loans (the Shellpoint Subservicing Agreement), (iii) to add an Agency Subservicing Agreement between Ocwen and NRM relating to Agency loans (the Agency Subservicing Agreement), and (iv) to conform the New RMSR Agreements and the NRM Subservicing Agreement to certain of the terms of the Shellpoint Subservicing Agreement and the Agency Subservicing Agreement.

At any time during the Initial Term, NRZ may terminate the Subservicing Agreements and Servicing Addendum for convenience with 180 days’ notice of the effective date of termination. If the effective date of termination is during the Initial Term, NRZ will be required to pay Ocwen a termination fee and deboarding fees that would cover Ocwen’s servicing transfer costs. The termination fee is calculated as specified in the Subservicing Agreements and Servicing Addendum, and is a discounted percentage of the expected revenues that would be owed to Ocwen over the remaining contract term based on certain portfolio run-off assumptions. We did not receive any such notice of termination from NRZ 180 days prior to the end of the Initial Terms of the Subservicing Agreements or the Servicing Addendum. Although no termination fee will be payable if NRZ provides a 180-day notice of termination during the remaining Initial Term of any of the agreements, NRZ will be required to pay deboarding fees that would cover Ocwen’s servicing transfer costs in connection with the effective date of termination that occurs after the Initial Term.

Following the Initial Term in July 2022, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice prior to the end of the Initial Term or the end of any three-month extended term after the Initial Term. Absent any notice of extension, each of the agreements will terminate at the end of its Initial Term in July 2022 or the end of any three-month extended term.

In addition, the Subservicing Agreements and Servicing Addendum may be terminated by Ocwen without cause on an annual basis (in effect a non-renewal) by providing at least 225 days’ notice in advance of the last day of the Initial Term or the last day of each one-year extension of the applicable terms after the Initial Term. Ocwen did not exercise its termination option. Therefore, the Subservicing Agreements and Servicing Addendum will automatically renew to July 2023, unless NRZ terminates or does not extend the term per the above discussion.

NRZ and Ocwen have the ability to terminate the Subservicing Agreements and Servicing Addendum for cause if certain specified conditions occur. The terminations must be terminations in whole (i.e., cover all the loans under the relevant Subservicing Agreement or Servicing Addendum) and not in part, except for limited circumstances specified in the agreements. In addition, if NRZ terminates any of the NRM or Shellpoint Subservicing Agreements or the Servicing Addendum for cause, the other agreements will also terminate automatically.

Under the terms of the Subservicing Agreements and Servicing Addendum, in addition to a base servicing fee, Ocwen receives certain ancillary fees, primarily late fees, loan modification fees and convenience or Speedpay® fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. NRZ receives all float earnings and deferred servicing fees related to delinquent borrower payments, as well as being entitled to receive certain REO related income including REO referral commissions.

As of March 31, 2022, the UPB of MSRs subject to the Servicing Agreements and the New RMSR Agreements is $53.6 billion, including $11.7 billion for which title has not transferred to NRZ. As the third-party consents required for title to the

MSRs to transfer were not obtained by May 31, 2019, the New RMSR Agreements set forth a process under which NRZ’s $11.7 billion Rights to MSRs may (i) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, at the option of Ocwen, or (ii) be sold, together with Ocwen’s title to those MSRs, to a third party in accordance with the terms of the New RMSR Agreements, subject to an additional Ocwen option to acquire at a price based on the winning third-party bid rather than selling to the third party. If the Rights to MSRs are not transferred pursuant to these alternatives, then the Rights to MSRs will remain subject to the New RMSR Agreements.

In addition, during the Initial Term, NRZ has the right to terminate the $11.7 billion New RMSR Agreements for convenience, in whole but not in part, subject to payment of a termination fee and 180 days’ notice. As noted above NRZ did not provide us with a notice of termination in January 2022, 180 days prior to the end of the Initial Term, so no termination fee will be payable if NRZ provides a notice of termination before the end of the Initial Term. If NRZ exercises this termination right, NRZ has the option of seeking (i) the transfer of the MSRs through a sale to a third party of its Rights to MSRs (together with a transfer of Ocwen’s title to those MSRs) or (ii) a substitute RMSR arrangement that substantially replicates the Rights to MSRs structure (a Substitute RMSR Arrangement) under which we would transfer title to the MSRs to a successor servicer and NRZ would continue to own the economic rights and obligations related to the MSRs. In the case of option (i), we have a purchase option as specified in the New RMSR Agreements. If NRZ is not able to sell the Rights to MSRs or establish a Substitute RMSR Arrangement with another servicer, NRZ has the right to revoke its termination notice and re-instate the Servicing Addendum or to establish a subservicing arrangement whereby the MSRs remaining subject to the New RMSR Agreements would be transferred to up to three subservicers who would subservice under Ocwen’s oversight. If such a subservicing arrangement were established, Ocwen would receive an oversight fee and reimbursement of expenses. We may also agree on alternative arrangements that are not contemplated under our existing agreements or that are variations of those contemplated under our existing agreements.

See further information related to the extension of the agreements with NRZ in Note 22 – Subsequent Events.


Note 9 – Receivables


	March 31, 2022		December 31, 2021
Servicing-related receivables:
Government-insured loan claims - Forward	$	84,783	$	90,603
Government-insured loan claims - Reverse	63,203		39,895

Due from custodial accounts	18,616		7,777
Receivable from sale of MSRs (holdback)	14,933		—
Servicing fees	6,416		6,662
Reimbursable expenses	3,169		6,056
Subservicing fees, reimbursable expenses and other - Due from MAV	3,512		4,933
Subservicing fees and reimbursable expenses - Due from NRZ	1,814		3,781
Other	1,708		1,223
	198,154		160,930
Income taxes receivable	51,114		56,776
Due from MAV	1,126		990
Other receivables	4,251		3,760
	254,645		222,456
Allowance for losses	(41,185)		(41,749)
	$	213,460	$	180,707

At March 31, 2022 and December 31, 2021, the allowance for losses primarily related to receivables of our Servicing business. The allowance for losses related to FHA- or VA-insured loans repurchased from Ginnie Mae guaranteed securitizations (government-insured claims) was $40.8 million and $41.5 million at March 31, 2022 and December 31, 2021, respectively. The government-insured claims that do not exceed HUD, VA or FHA insurance limits are guaranteed by the U.S. government.


Allowance for Losses - Government-Insured Loan Claims	Three Months Ended March 31,
	2022		2021
Beginning balance	$	41,495	$	38,339
Provision	2,239		4,958
Charge-offs and other, net	(2,898)		(2,860)
Ending balance	$	40,836	$	40,437


Note 10 - Investment in Equity Method Investee and Related Party Transactions

On December 21, 2020, Ocwen entered into a transaction agreement (the Transaction Agreement) with Oaktree Capital Management L.P. and certain affiliates (collectively Oaktree) to form a strategic relationship to invest in MSRs subserviced by PMC. The parties have agreed to invest their pro rata portions of up to an aggregate of $250.0 million in an intermediate holding company, MAV Canopy, held 15% by Ocwen and 85% by Oaktree.

On May 3, 2021, pursuant to the Transaction Agreement, Ocwen contributed MAV, which had total member’s equity and cash balances of approximately $5.0 million, to MAV Canopy, and received 15% of MAV Canopy and cash consideration. MAV is a licensed mortgage servicing company approved to purchase GSE MSRs. PMC and MAV entered into a number of definitive agreements which govern the terms of their business relationship:

Subservicing Agreement. Effective May 3, 2021, PMC entered into a subservicing agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV in exchange for a per-loan subservicing fee and certain other ancillary fees. The subservicing agreement will continue until terminated by mutual agreement of the parties or for cause, as defined. If either party terminates the agreement for cause, the other party is required to pay certain fees and costs. As of March 31, 2022, PMC subserviced a total $35.3 billion UPB on behalf of MAV, of which $26.8 billion MSR remains reported on the consolidated balance sheet of PMC - see below for information on MSR sales by PMC to MAV that do not achieve sale accounting. Subserviced loans exclude UPB of $8.3 billion that have not yet transferred to our servicing system as of March 31, 2022. Effective March 1, 2022, PMC and MAV amended certain provisions of the subservicing agreement to adjust down the ancillary fee retained by PMC to enhance the competitiveness of MAV when buying MSRs and generate additional subservicing volume to PMC. The amendment resulted in a $14.1 million fair value loss (as a change in the present value of future contractual cash flows) on the Pledged MSR Liability that is reported at fair value, i.e., relating to the $26.8 billion MSR transferred to MAV that did not achieve sale accounting.

Joint Marketing Agreement and Recapture Agreement. Effective May 3, 2021, in conjunction with the subservicing agreement, PMC and MAV entered into a joint marketing agreement and a flow MSR sale agreement (MSR recapture), whereby PMC is entitled to the exclusive right to solicit and refinance borrowers with loans underlying the MSR owned by MAV, and is obligated to transfer to MAV the MSR associated with the loans so originated. Under the agreements, the parties share the recapture benefits, whereby PMC realizes gains on loans sold and MAV is delivered the recaptured MSR for no cash consideration. The joint marketing agreement and flow MSR sale agreement will continue until terminated by mutual agreement of the parties or for cause, as defined, or at the option of either party if the subservicing agreement is terminated. During the three months ended March 31, 2022, PMC transferred UPB of $90.3 million under this agreement.

Right of First Offer. Following the execution of the Transaction Agreement and until the parties have contributed their pro rata portions of the $250.0 million aggregate capital contributions, Ocwen and its affiliates may not acquire, without Oaktree’s prior written approval, GSE MSRs that meet certain underwriting and other criteria (such criteria are referred to as the “buy-box”) unless Ocwen notifies MAV of the opportunity and MAV does not pursue it by submitting a competitive bid to the MSR seller. In addition, until the earlier of (i) the time that MAV has been fully funded and (ii) May 3, 2024 (subject to two annual extensions by mutual agreement), if Ocwen seeks to sell any GSE MSRs that meet the buy-box, Ocwen must first offer such MSRs to MAV before initiating a sale process with a third party. If MAV does not accept Ocwen’s offer, Ocwen may sell the MSRs to a third party on terms no more favorable to the purchaser than those offered to MAV. The price at which Ocwen and its affiliates will offer MSRs to MAV will be based on the valuation of an independent third-party. This first offer provision does not apply to MSRs acquired by PMC prior to May 3, 2021. As of March 31, 2022, MAV’s aggregated capital contributions amounted to $128.7 million, net of distributions.

Forward Bulk Servicing Rights Purchase and Sale Agreement: On September 9, 2021, PMC and MAV entered into an MSR purchase and sale agreement whereby PMC sells MAV on a monthly basis certain Fannie Mae MSRs at the price acquired by PMC, subject to certain adjustments. During the three months ended March 31, 2022, PMC transferred MSRs with UPB of $2.8 billion to MAV under this agreement.

Bulk Mortgage Servicing Rights Purchase and Sale Agreements. During the first quarter of 2022, PMC sold MAV certain MSRs in bulk transactions for an aggregate UPB of approximately $598 million.

The MSR sale transactions between PMC and MAV do not qualify for sale accounting primarily due to the termination restrictions of the subservicing agreement, and are accounted for as secured borrowings. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting for a summary of transactions under this agreement.

Administrative Services Agreement: Ocwen provides certain administrative services to MAV, including accounting, treasury, human resources, management information, MSR transaction management support, and certain licensing, regulatory and risk management support. Ocwen is entitled to a fee for such services, subject to an annual cap of $0.5 million.

Our equity method investment in MAV Canopy is comprised of the following at and for the dates indicated:


	Three Months Ended March 31, 2022		Three Months Ended December 31, 2021
Beginning balance	$	23,297	$	19,794
Capital contributions	16,500		9,415
Capital distributions	(16,875)		(8,250)
Earnings of equity method investee	12,003		2,338
Ending balance	$	34,925	$	23,297

Under the Amended & Restated Limited Liability Company Agreement with MAV Canopy, Ocwen is entitled to receive its 15% percentage interest share of MAV Canopy’s earnings, subject to certain adjustments. In addition, upon MAV Canopy liquidation or upon determination of the MAV Canopy Board of Directors to make advance distributions, Ocwen is entitled to receive a specified portion of the distribution amount available (“Promote Distribution”), after satisfaction of required distribution thresholds, including a specified internal rate of return threshold on Oaktree member’s gross adjusted capital contributions. We determined that the Promote Distribution represents an incentive fee under our various service agreements with MAV with a variable consideration and is recognized in earnings when it is probable that a significant reversal will not occur. As of March 31, 2022, Ocwen has not recognized any such incentive fee.

MAV Canopy, MAV and Oaktree are deemed related parties to Ocwen. In addition to its investment in MAV Canopy, the subservicing agreement by PMC and the other agreements described above, Ocwen issued common stock, warrants and senior secured notes to Oaktree in 2021 as described in Note 13 – Borrowings and Note 16 – Interest Expense.


Note 11 – Other Assets


	March 31, 2022		December 31, 2021
Contingent loan repurchase asset	$	329,049	$	403,740
Prepaid expenses	29,081		21,498
Hedge margin deposit	20,610		2,024
Prepaid representation, warranty and indemnification claims - Agency MSR sale	15,173		15,173
Intangible assets, net	13,732		14,335
REO	11,158		10,075
Derivatives, at fair value	9,302		21,675
Prepaid lender fees, net	6,029		7,150
Deferred tax asset, net	3,323		3,329

Security deposits	1,156		1,174



Other	7,671		7,077
	$	446,284	$	507,250

Note 12 - Other Financing Liabilities

The following tables presents transferred MSR liabilities recorded in connection with MSR sales and transfers that do not qualify for sale accounting and liabilities of consolidated mortgage-backed securitization trusts.


			Outstanding Balance
Borrowing Type	Collateral	Maturity	March 31, 2022		December 31, 2021

Original Rights to MSRs Agreements, at fair value - NRZ (1)	MSRs	(1)	$	545,306	$	558,940




Pledged MSR liability, at fair value - MAV (1)	MSRs	(1)	319,009		238,144
			864,315		797,084

Financing liability - Owed to securitization investors, at fair value:

Residential Asset Securitization Trust 2003-A11 (RAST 2003-A11) (2)	Loans held for investment	Oct. 2033	7,721		7,879


Total Other financing liabilities, at fair value			$	872,036	$	804,963

(1)See Note 8 — MSR Transfers Not Qualifying for Sale Accounting for additional information.

(2)Consists of securitization debt certificates due to third parties that represent beneficial interests in trusts that we include in our unaudited consolidated financial statements. Holders of the debt issued by the consolidated securitization trust entities have recourse only to the assets of the SPE for satisfaction of the debt and have no recourse against the assets of Ocwen. Similarly, the general creditors of Ocwen have no claim on the assets of the trusts. The certificates in the trust pay interest based on fixed rates ranging between 4.25% and 5.75% and a variable rate based on 1ML plus applicable margin, and include principal-only certificates that are not entitled to receive distributions of interest. The maturity of the certificates occurs upon maturity of the loans held by the trust.


Note 13 – Borrowings


Advance Match Funded Liabilities		Borrowing Capacity			Outstanding Balance
Borrowing Type	Maturity (1)	Amort. Date (1)	Total		Available (2)			March 31, 2022			December 31, 2021




Advance Receivables Backed Notes - Series 2015-VF5 (3)	Jun. 2052	Jun. 2022	$	80,000	$	67,213		$	12,787		$	14,231
Advance Receivables Backed Notes, Series 2020-T1 (4)	Aug. 2052	Aug. 2022	445,000		—			445,000			475,000
Total Ocwen Master Advance Receivables Trust (OMART)		525,000	67,213		457,787			489,231









Ocwen GSE Advance Funding (OGAF) - Advance Receivables Backed Notes, Series 2015-VF1 (5)	Aug. 2052	Aug. 2022	40,000		477			39,523			23,065
Total Servicing Advance Financing Facilities			$	565,000	$	67,690		$	497,310		$	512,297

Weighted average interest rate (6)					1.57		%	1.54		%

(1)The amortization date of our facilities is the date on which the revolving period ends under each advance facility note and repayment of the outstanding balance must begin if the note is not renewed or extended. The maturity date is the date on which all outstanding balances must be repaid. In all of our advance facilities, there are multiple notes outstanding. After the amortization date for each note, all collections that represent the repayment of advances pledged to the facility must be applied ratably to each outstanding amortizing note to reduce the balance and, as such, the collection of advances allocated to the amortizing note may not be used to fund new advances.

(2)The committed borrowing capacity under the OMART and OGAF facilities is available to us provided that we have sufficient eligible collateral to pledge. At March 31, 2022, $1.6 million of the available borrowing capacity of the OMART and OGAF advance financing notes could be used based on the amount of eligible collateral.

(3)Interest is computed based on the lender’s cost of funds plus applicable margin.

(4)The interest rates on the individual classes of notes range between 1.28% to 5.42%.

(5)Interest is computed based on the lender’s cost of funds plus applicable margin. On January 31, 2022, we amended the Ocwen Freddie Advance Funding (OFAF) advance facility to include Fannie Mae advances as eligible collateral and renamed the facility Ocwen GSE Advance Funding (OGAF).

(6)The weighted average interest rate, excluding the effect of the amortization of prepaid lender fees, is computed using the outstanding balance of each respective note and its interest rate at the financial statement date. At March 31, 2022 and December 31, 2021, the balance of unamortized prepaid lender fees was $0.9 million and $1.3 million, respectively, and are included in Other assets in our consolidated balance sheets.


Mortgage Loan Warehouse Facilities			Available Borrowing Capacity					Outstanding Balance
Borrowing Type	Collateral	Maturity	Uncommitted		Committed (1)			March 31, 2022			Dec. 31, 2021
Master repurchase agreement (2)	Loans held for sale (LHFS), Receivables and REO	June 2022	$	115,000	$	53,249		$	106,751		$	109,437
Master repurchase agreement (3)	LHFS and Loans Held for Investment (LHFI)	Dec. 2022	231,396		—			218,604			160,882
Master repurchase agreement (4)	N/A	N/A	50,000		—			—			—
Participation agreement (5)	LHFS	June 2022	150,000		—			—			45,186
Master repurchase agreement (5)	LHFS	June 2022	—		62,459			37,541			1,766
Master repurchase agreement	LHFS	June 2022	—		1,000			—			—
Mortgage warehouse agreement (6)	LHFS	Mar. 2023	—		43,133			6,867			11,792
Mortgage warehouse agreement (7)	LHFS and LHFI	Dec. 2022	135,638		—			68,362			87,813
Mortgage warehouse agreement (8)	LHFS and Receivables	(8)	44,617		—			205,383			192,023
Master repurchase agreement (9)	LHFS	(9)	—		—			280,271			459,344
Loan and security agreement (10)	LHFS and Receivables	Apr. 2022	—		14,659			35,341			16,834
Total mortgage loan warehouse facilities			$	726,651	$	174,500		$	959,121		$	1,085,076

Weighted average interest rate (11)					2.90		%	2.61		%

(1)Of the borrowing capacity on mortgage loan warehouse facilities extended on a committed basis, $5.4 million of the available borrowing capacity could be used at March 31, 2022 based on the amount of eligible collateral that could be pledged.

(2)The maximum borrowing under this agreement is $275.0 million, of which $160.0 million is available on a committed basis and the remainder is available at the discretion of the lender. The interest rate for this facility was 1ML plus applicable margin.

(3)The maximum borrowing under this agreement is $450.0 million, of which $200.0 million is available on a committed basis and the remainder is available on an uncommitted basis. The interest rate for this facility was 1ML plus applicable margin.

(4)The lender provides financing for up to $50.0 million at the discretion of the lender. The agreement has no stated maturity date. Interest on this facility is based on the Secured Overnight Financing Rate (SOFR). The interest rate for this facility was SOFR plus applicable margin, with a SOFR floor of 25 bps.

(5)The uncommitted borrowing capacity under the participation agreement is $150.0 million and the committed borrowing capacity under the repurchase agreement is $100.0 million. The interest rate on repurchase agreement is the stated interest rate of the mortgage loans, less applicable margin with an interest rate floor of 3.00% for new originations and less applicable margin with an interest rate floor of 3.25% for Ginnie Mae modifications, Ginnie Mae buyouts and RMBS bond clean up loans. The interest rate on the participation agreement is the stated interest rate of the mortgage loans, less applicable margin with a floor of 3.00% for new originations. The agreements allow the lender to acquire a 100% beneficial interest in the underlying mortgage loans.

(6)Under this agreement, the lender provides financing for up to $50.0 million on a committed basis. The interest rate for this facility was modified to SOFR plus applicable margin with an interest rate floor of 5.00%. On January 14, 2022, the maturity date of this facility was extended to March 16, 2022 when it was further extended to March 16, 2023.

(7)Under this agreement, the lender provides financing for up to $204.0 million on an uncommitted basis. On February 20, 2022, the interest rate for this facility was modified to SOFR plus applicable margin, with an interest rate floor of 2.45%.

(8)The total borrowing capacity of this facility, all of which is uncommitted, was increased from $200.0 million to $250.0 million on January 5, 2022. The agreement has no stated maturity date, however each transaction has a maximum duration of four years. The cost of this line is set at each transaction date and is based on the interest rate and type of the collateral.

(9)This repurchase agreement provides borrowing at our discretion up to a certain maximum amount of capacity on a rolling 30-day committed basis. This facility is structured as a gestation repurchase facility whereby dry Agency mortgage loans are transferred to a trust which issues a trust certificate that is pledged as the collateral for the borrowings. See Note 2 – Securitizations and Variable Interest Entities for additional information. Each certificate is renewed monthly and the interest rate for this facility is 1ML plus applicable margin. We voluntarily reduced the trust certificates by $75.0 million on January 27, 2022 and by an additional $100.0 million on February 28, 2022. Subsequently, we further voluntarily reduced the certificates by $50.0 million on April 22, 2022.

(10)This revolving facility agreement provides up to $50.0 million of committed borrowing capacity secured by eligible HECM loans that are active buyouts (ABO), as defined in the agreement. The interest rate for this facility is Prime Rate plus applicable margin, with an interest rate floor of 450 bps.

(11)1ML was 0.45% and 0.10% at March 31, 2022 and December 31, 2021, respectively. Prime Rate was 3.25% at March 31, 2022 and December 31, 2021. The weighted average interest rate excludes the effect of the amortization of prepaid lender fees. At March 31, 2022 and December 31, 2021, unamortized prepaid lender fees were $1.0 million and $1.2 million, respectively, and are included in Other assets in our consolidated balance sheets.


MSR financing facilities, net					Available Borrowing Capacity								Outstanding Balance
Borrowing Type	Collateral	Maturity			Uncommitted				Committed (1)				March 31, 2022				December 31, 2021
Agency MSR financing facility (2)	MSRs	June 2022			$	—			$	67,649			$	282,351			$	317,523
Ginnie Mae MSR financing facility (3)	MSRs, Advances	Feb. 2023			45,104				—				129,896				131,694
Ocwen Excess Spread-Collateralized Notes, Series 2019/2022-PLS1 (4)	MSRs	Feb. 2025			—				—				72,838				41,663
Secured Notes, Ocwen Asset Servicing Income Series Notes, Series 2014-1 (5)	MSRs	Feb. 2028			—				—				37,643				39,529
Agency MSR financing facility - revolving loan (6)	MSRs	June 2026			—				7,929				277,071				277,071
Agency MSR financing facility - term loan (6)	MSRs	June 2023			—				—				94,178				94,178
Total MSR financing facilities			$	45,104			$	75,578			$	893,977			901,658

Unamortized debt issuance costs - PLS Notes and Agency MSR financing - term loan (7)									(1,342)				(898)
Total MSR financing facilities, net											$	892,635			$	900,760

Weighted average interest rate (8) (9)									3.39%				3.71%

(1)Of the borrowing capacity on MSR financing facilities extended on a committed basis, $40.4 million of the available borrowing capacity could be used at March 31, 2022 based on the amount of eligible collateral that could be pledged.

(2)PMC’s obligations under this facility are secured by a lien on the related MSRs. Ocwen guarantees the obligations of PMC under this facility. The maximum amount which we may borrow pursuant to the repurchase agreements is $350.0 million on a committed basis. We also pledged the membership interest of the depositor for our OMART advance financing facility as additional collateral to this facility. See Note 2 – Securitizations and Variable Interest Entities for additional information. We are subject to daily margining requirements under the terms of the facility. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under these facilities. The interest rate for this facility is 1ML plus applicable margin.

(3)In connection with this facility, PMC entered into a repurchase agreement pursuant to which PMC has sold a participation certificate representing certain economic interests in the Ginnie Mae MSRs and servicing advances and has agreed to repurchase such participation certificate at a future date at the repurchase price set forth in the repurchase agreement. PMC’s obligations under this facility are secured by a lien on the related Ginnie Mae MSRs and servicing advances. Ocwen guarantees the obligations of PMC under the facility. See (2) above regarding daily margining requirements. On January 31, 2022, the maturity date of this facility was extended to February 28, 2022. On February 28, 2022, the maturity date was extended to February 28, 2023, the borrowing capacity was increased from $150.0 million to $175.0 million ($50.0 million available on a committed basis) and the interest rate was modified to adjusted daily simple SOFR plus applicable margin (adjusted SOFR floor of 25 bps).

(4)PLS Issuer’s obligations under the facility are secured by a lien on the related PLS MSRs. Ocwen guarantees the obligations of PLS Issuer under the facility. The Class A PLS Notes issued pursuant to the credit agreement had an initial principal amount of $100.0 million and a fixed interest rate of 5.07%. On March 15, 2022, we replaced the existing notes with a new series of notes (Series 2022-PLS1) at an initial principal amount of $75.0 million and a fixed interest rate of 5.114%. The principal balance amortizes in accordance with a predetermined schedule subject to modification under certain events, with a final payment due in February 2025. See Note 2 – Securitizations and Variable Interest Entities for additional information.

(5)OASIS noteholders are entitled to receive a monthly payment equal to the sum of: (a) 21 basis points of the UPB of the reference pool of Freddie Mac mortgages; (b) any termination payment amounts; (c) any excess refinance amounts; and (d) the note redemption amounts, each as defined in the indenture supplement for the notes. Monthly amortization of the liability is estimated using the proportion of monthly projected service fees on the underlying MSRs as a percentage of lifetime projected fees, adjusted for the term of the notes.

(6)This facility includes a $94.2 million ($135.0 million original balance) term loan and a $285.0 million revolving loan secured by a lien on PMC’s Agency MSRs. See (2) above regarding daily margining requirements. The interest rate for this facility is the 1-year swap rate plus applicable margin.

(7)At March 31, 2022 and December 31, 2021, unamortized debt issuance costs included $1.3 million and $0.9 million, respectively. on the PLS Notes and the Agency MSR financing facility - term loan. At March 31, 2022 and December 31, 2021, unamortized prepaid lender fees related to revolving type MSR financing facilities were $4.2 million and $4.7 million, respectively, and are included in Other assets in our consolidated balance sheets.

(8)Weighted average interest rate at, excluding the effect of the amortization of debt issuance costs and prepaid lender fees.

(9)1ML was 0.45% and 0.10% at March 31, 2022 and December 31, 2021, respectively. The 1-year swap rate was 0.19% at March 31, 2022 and December 31, 2021, respectively.


Senior Notes	Interest Rate (1)	Maturity	Outstanding Balance
			March 31, 2022		December 31, 2021

PMC Senior Secured Notes	7.875%	March 2026	$	400,000	$	400,000
OFC Senior Secured Notes (due to related parties)	12% paid in cash or 13.25% paid-in-kind (see below)	March 2027	285,000		285,000
Principal balance			685,000		685,000
Discount (2)
PMC Senior Secured Notes			(1,670)		(1,758)
OFC Senior Secured Notes (3)			(52,480)		(54,176)
			(54,150)		(55,934)
Unamortized debt issuance costs (2)
PMC Senior Secured Notes			(5,402)		(5,687)
OFC Senior Secured Notes			(8,316)		(8,582)
			(13,718)		(14,269)

			$	617,132	$	614,797

(1)Excluding the effect of the amortization of debt issuance costs and discount.

(2)The discount and debt issuance costs are amortized to interest expense through the maturity of the respective notes.

(3)Includes original issue discount (OID) and additional discount related to the concurrent issuance of warrants and common stock. See below for additional information.

Redemption of 6.375% Senior Unsecured Notes due 2021 and 8.375% Senior Secured Notes due 2022

On March 4, 2021, we redeemed all of PHH’s outstanding 6.375% Senior Notes due August 2021 at a price of 100% of the principal amount, plus accrued and unpaid interest, and all of PMC’s 8.375% Senior Secured Notes due November 2022 at a price of 102.094% of the principal amount, plus accrued and unpaid interest. The redemption resulted in our recognition of a $7.1 million loss on debt extinguishment.

Issuance of 7.875% Senior Secured Notes due 2026

On March 4, 2021, PMC completed the issuance and sale of $400.0 million aggregate principal amount of 7.875% senior secured notes due March 15, 2026 (the PMC Senior Secured Notes) at a discount of $2.1 million. The PMC Senior Secured Notes are guaranteed on a senior secured basis by Ocwen and PHH and were sold in an offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act).

Interest on the PMC Senior Secured Notes accrues at a rate of 7.875% per annum and is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021.

On or after March 15, 2023, PMC may redeem some or all of the PMC Senior Secured Notes at its option at the following redemption prices, plus accrued and unpaid interest, if any, on the notes redeemed to, but excluding, the redemption date if redeemed during the 12-month period beginning on March 15th of the years indicated below:


Redemption Year	Redemption Price
2023	103.938	%
2024	101.969
2025 and thereafter	100.000

Prior to March 15, 2023, PMC may, on any one or more occasions, redeem some or all of the PMC Senior Secured Notes at its option at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus a “make-whole” premium equal to the greater of (i) 1.0% of the then outstanding principal amount of such note and (ii) the excess of (1) the present value at the redemption date of the sum of (A) the redemption price of the note at March 15, 2023 (such redemption price is set forth in the table above) plus (B) all required interest payments due on such notes through March 15, 2023 (excluding accrued but unpaid interest), such present value to be computed using a discount rate equal to the Treasury Rate (as defined in the indenture governing the PMC Senior Secured Notes (Indenture)) as of such redemption date plus 50 basis points; over (2) the then outstanding principal amount of such notes, plus accrued and unpaid interest, if any, on the notes redeemed to, but excluding, the redemption date.

In addition, on or prior to March 15, 2023, PMC may also redeem up to 35.0% of the principal amount of all of the PMC Senior Secured Notes originally issued under the Indenture (including any additional PMC Senior Secured Notes issued under the Indenture) using the net proceeds of certain equity offerings at a redemption price equal to 107.875% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of redemption (subject to the rights of holders of notes on the relevant regular record date to receive interest due on the relevant interest payment date that is on or prior to the applicable date of redemption); provided that: (i) at least 65.0% of the principal amount of all PMC Senior Secured Notes issued under the Indenture remains outstanding immediately after any such redemption; and (ii) PMC makes such redemption not more than 120 days after the consummation of any such equity offering.

The Indenture contains customary covenants for debt securities of this type that limit the ability of PHH and its restricted subsidiaries (including PMC) to, among other things, (i) incur or guarantee additional indebtedness, (ii) incur liens, (iii) pay dividends on or make distributions in respect of PHH’s capital stock or make other restricted payments, (iv) make investments, (v) consolidate, merge, sell or otherwise dispose of certain assets, and (vi) enter into transactions with Ocwen’s affiliates.

Issuance of OFC Senior Secured Notes

On March 4, 2021, Ocwen completed the private placement of $199.5 million aggregate principal amount of senior secured notes (the OFC Senior Secured Notes) with an OID of $24.5 million to certain entities owned by funds and accounts managed by Oaktree Capital Management, L.P. (the Oaktree Investors). Concurrent with the issuance of the OFC Senior Secured Notes, Ocwen issued to the Oaktree Investors warrants to purchase shares of its common stock. The $158.5 million proceeds were allocated to the OFC Senior Secured Notes on a relative fair value basis resulting in an initial discount.

On May 3, 2021, Ocwen issued to Oaktree the second tranche of the OFC Senior Secured Notes in an aggregate principal amount of $85.5 million with an OID of $10.5 million. Concurrent with the issuance of the second tranche of OFC Senior Secured Notes, Ocwen issued to the Oaktree Investors shares and warrants to purchase shares of its common stock. The $68.0 million proceeds were allocated to the OFC Senior Secured Notes on a relative fair value basis resulting in an initial discount.

The OFC Senior Secured Notes mature on March 4, 2027 with no amortization of principal. Interest is payable quarterly in arrears on the last business day of each March, June, September and December and accrues at the rate of 12% per annum to the extent interest is paid in cash or 13.25% per annum to the extent interest is “paid-in-kind” through an increase in the principal amount or the issuance of additional notes (PIK Interest). Prior to March 4, 2022, all of the interest on the OFC Senior Secured Notes may, at our option, be paid as PIK Interest. On or after March 4, 2022, a minimum amount of interest is required to be paid in cash equal to the lesser of (i) 7% per annum of the outstanding principal amount of the OFC Senior Secured Notes and (ii) the total amount of unrestricted cash of Ocwen and its subsidiaries less the greater of $125.0 million and the minimum liquidity amounts required by any agency.

The OFC Senior Secured Notes are solely the obligation of Ocwen and are secured by a pledge of substantially all of the assets of Ocwen, including a pledge of the equity of Ocwen’s directly held subsidiaries. The lien on Ocwen’s assets securing the OFC Senior Secured Notes is junior to the lien securing Ocwen’s guarantee of the 7.875% PMC Senior Secured Notes described above. The OFC Senior Secured Notes are not guaranteed by any of Ocwen’s subsidiaries nor are they secured by a pledge or lien on any assets of Ocwen’s subsidiaries.

Prior to March 4, 2026, we are permitted to redeem the OFC Senior Secured Notes in whole or in part at any time at a redemption price equal to par, plus a make-whole premium, plus accrued and unpaid interest. On and after March 4, 2026, we will be permitted to redeem the OFC Senior Secured Notes in whole or in part at any time at a redemption price equal to par plus accrued and unpaid interest.

The OFC Senior Secured Notes have two financial maintenance covenants: (1) a minimum book value of stockholders’ equity of not less than $275.0 million and (2) a minimum amount of unrestricted cash of not less than $50.0 million at any time. The OFC Senior Secured Notes also have affirmative and negative covenants and events of default that are customary for debt securities of this type.

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligations. At March 31, 2022, the S&P issuer credit rating for Ocwen was “B”. On January 24, 2022, S&P raised the assigned rating of the PMC Senior Secured Notes from “B-” to ‘B’ and maintained a stable outlook citing improved profitability and an increase in assets. Moody’s reaffirmed their ratings of Caa1 and revised their outlook to Stable from Negative on February 24, 2021. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.

Covenants

Under the terms of our debt agreements, we are subject to various affirmative and negative covenants. Collectively, these covenants include:

•Financial covenants, including, but not limited to, specified levels of net worth, liquidity and leverage;

•Covenants to operate in material compliance with applicable laws;

•Restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional forms of debt, paying dividends or making distributions on or purchasing equity interests of Ocwen and its subsidiaries, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries or of PHH or PMC and their respective subsidiaries, creating liens on assets to secure debt, and entering into transactions with affiliates;

•Monitoring and reporting of various specified transactions or events, including specific reporting on defined events affecting collateral underlying certain debt agreements; and

•Requirements to provide audited financial statements within specified timeframes, including requirements that Ocwen’s financial statements and the related audit report be unqualified as to going concern.

The most restrictive consolidated net worth requirement contained in our debt agreements with borrowings outstanding at March 31, 2022 is a minimum of $275.0 million tangible net worth at Ocwen, as defined in certain of our mortgage warehouse, MSR financing and advance financing facilities agreements, or, if greater, the minimum requirement at PMC set forth by the Agencies. See Note 19 – Regulatory Requirements. The most restrictive liquidity requirement under our debt agreements with borrowings outstanding at March 31, 2022 is for a minimum of $125.0 million in consolidated liquidity, as defined, under certain of our advance match funded debt and MSR financing facilities agreements.

We believe we were in compliance with all of the covenants in our debt agreements as of the date of these unaudited consolidated financial statements.

Collateral

Our assets held as collateral for secured borrowings and other unencumbered assets which may be subject to a lien under various collateralized borrowings are as follows at March 31, 2022:


	Assets		Pledged Assets		Collateralized Borrowings		Unencumbered Assets (1)
Cash	$	268,691	$	—	$	—	$	268,691
Restricted cash	76,294		76,294		—		—
Loans held for sale	725,051		686,640		709,719		38,412
Loans held for investment - securitized (2)	7,202,045		7,202,045		7,118,844		—
Loans held for investment - unsecuritized	249,510		214,352		195,781		35,158
MSRs (3)	1,435,181		1,434,480		814,530		701
Advances, net	729,973		609,225		576,757		120,747
Receivables, net	213,460		51,623		49,122		161,836
REO	11,158		6,560		4,498		4,598
Total (4)	$	10,911,363	$	10,281,220	$	9,469,251	$	630,143

(1)Certain assets are pledged as collateral to the $400.0 million PMC Senior Secured Notes and $285.0 million OFC Senior Secured (second lien) Notes.

(2)Reverse mortgage loans and real estate owned are pledged as collateral to the HMBS beneficial interest holders, and are not available to satisfy the claims of our creditors. Ginnie Mae, as guarantor of the HMBS, is obligated to the holders of the HMBS in an instance of PMC’s default on its servicing obligations, or if the proceeds realized on HECMs are insufficient to repay all outstanding HMBS related obligations. Ginnie Mae has recourse to PMC in connection with certain claims relating to the performance and obligations of PMC as both issuer of HMBS and servicer of HECMs underlying HMBS.

(3)Excludes MSRs transferred to NRZ and MAV and associated Pledged MSR liability recorded as sale accounting criteria are not met.

(4)The total of selected assets disclosed in the above table does not represent the total consolidated assets of Ocwen. For example, the total excludes premises and equipment and certain other assets.

The OFC Senior Secured Notes due 2027 have a second lien priority on specified assets carried on PMC’s balance sheet, as defined under the OFC Senior Secured Note Agreement and listed in the table below, and have a priority lien on the following assets: investments by OFC in subsidiaries not guaranteeing the $400.0 million PMC Senior Secured Notes, including PHH and MAV; cash and investment accounts at OFC; and certain other assets, including receivables.


	March 31, 2022
Specified net servicing advances	$	157,311
Specified deferred servicing fee	23,081
Specified MSR value less borrowings	731,436
Specified unrestricted cash balances	155,785
Specified advance facility reserves	6,574
Specified loan value	68,526
Specified residual value	40,200
Specified fair value of marketable securities	—
Total (PMC)	$	1,182,912


Note 14 – Other Liabilities


	March 31, 2022		December 31, 2021
Contingent loan repurchase liability	$	329,049	$	403,740
Other accrued expenses	99,582		104,931
Due to NRZ - Advance collections, servicing fees and other	75,548		76,590
Servicing-related obligations	62,388		32,366
Checks held for escheat	46,133		44,866
Accrued legal fees and settlements	46,047		43,990
Liability for indemnification obligations	45,958		51,243
Lease liability	21,797		16,842
MSR purchase price holdback	15,121		32,620
Liability for uncertain tax positions	14,915		14,730
Derivatives, at fair value	12,916		3,080
Due to MAV	8,485		2,134
Liability for unfunded India gratuity plan	6,082		6,263
Accrued interest payable	5,228		11,998
Hedge margin liability	4,064		3,714
Liability for unfunded pension obligation	3,837		4,183



Other	9,451		14,224
	$	806,601	$	867,514


Note 15 – Derivative Financial Instruments and Hedging Activities

The table below summarizes the fair value, notional and maturity of our derivative instruments. The notional amount of our contracts does not represent our exposure to credit loss. None of the derivatives were designated as a hedge for accounting purposes as of or during the three months ended March 31, 2022 and 2021.


	March 31, 2022					December 31, 2021
	Maturities	Notional		Fair value		Maturities	Notional		Fair value
Derivative Assets (Other assets)
Forward sales of reverse loans	Apr. - May 2022	$	86,000	$	391	Feb. 2022	$	175,000	$	364
Forward loans IRLCs	Apr. - June 2022	569,766		4,016		Jan. - Apr. 2022	1,021,978		16,074
Reverse loans IRLCs	Apr. 2022	47,781		1,657		Jan. 2022	63,327		2,011



TBA forward MBS trades	Apr. - June 2022	413,000		3,113		Jan. - Mar. 2022	587,000		946
Interest rate swap futures	N/A	—		—		Mar. 2022	792,500		1,734
Interest rate option contracts	May 2022	400,000		125		Jan. 2022	125,000		547

Total		$	1,516,547	$	9,302		$	2,764,805	$	21,675

Derivative Liabilities (Other liabilities)
Forward sales of reverse loans	Apr. - May 2022	$	115,000	$	(382)	N/A	$	—	$	—



TBA forward MBS trades	Apr. - June 2022	784,000		(7,065)		Jan. - Mar. 2022	1,195,000		(1,185)


Interest rate option contracts	Apr. - May 2022	1,700,000		(4,791)		Feb. 2022	450,000		(824)
Other	N/A	51,276		(677)		N/A	—		(1,070)
Total		$	2,650,276	$	(12,916)		$	1,645,000	$	(3,080)

The table below summarizes the net gains and losses of our derivative instruments recognized in our consolidated statement of operations.

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Gain / (Loss)

Amount

Financial Statement Line

Amount

Financial Statement Line

Derivative Instruments

Forward loans IRLCs

(12,057)

Gain on loans held for sale, net

(8,602)

Gain on loans held for sale, net

Reverse loans IRLCs

(354)

Reverse mortgage revenue, net

485

Reverse mortgage revenue, net

TBA trades (economically hedging forward pipeline trades and EBO pipeline)

47,107

Gain on loans held for sale, net (Economic hedge)

—

Gain on loans held for sale, net (Economic hedge)

Interest rate swap futures, TBA trades and interest rate option contracts

(66,764)

MSR valuation adjustments, net

(13,682)

MSR valuation adjustments, net

Forward sales of Reverse loans

(355)

Reverse mortgage revenue, net

(2)

Reverse mortgage revenue, net

Other

—

Gain on loans held for sale, net

(16)

Gain on loans held for sale, net

Other

393

Other, net

—

Other, net

Total

(32,030)

(21,816)

Interest Rate Risk

MSR Hedging

MSRs are carried at fair value with changes in fair value being recorded in earnings in the period in which the changes occur. The fair value of MSRs is subject to changes in market interest rates and prepayment speeds.

Through May 2021, management implemented a macro-hedging strategy to reduce the volatility of the MSR portfolio attributable to interest rate changes. As a general matter, the impact of interest rates on the fair value of our MSR portfolio is naturally offset by other exposures, including our loan pipeline and our economic MSR value embedded in our reverse mortgage loan portfolio. Our hedging strategy was targeted at mitigating the residual exposure, which we referred to as our net MSR portfolio exposure. We defined our net MSR portfolio exposure as follows:

•our more interest rate-sensitive Agency MSR portfolio,

•less the Agency MSRs subject to our agreements with NRZ (See Note 8 — MSR Transfers Not Qualifying for Sale Accounting),

•less the unsecuritized reverse mortgage loans and tails classified as held for investment,

•less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings, and

•less the net value of our held for sale loan portfolio and lock commitments (pipeline).

Effective May 2021, management started hedging its MSR portfolio and its pipeline separately (see below for further description of pipeline hedging), effectively ending the macro-hedge strategy previously in place. Under the new MSR hedging strategy, the interest-rate sensitive MSR portfolio exposure is now defined as follows:

•Agency MSR portfolio,

•expected Agency MSR bulk transactions subject to letters of intent (LOI),

•less the Agency MSRs subject to our sale agreements with NRZ and MAV (See Note 8 — MSR Transfers Not Qualifying for Sale Accounting),

•less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings.

The objective of our MSR policy is to provide partial hedge coverage of interest-rate sensitive MSR portfolio exposure, considering market and liquidity conditions. The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) at the time of measurement is subject to lower and upper thresholds, as modeled, of 40% and 60%, respectively in order to preserve liquidity and optimize asset returns. Accordingly, the changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate

changes. We periodically evaluate the 40-60% coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, and liquidity impacts of both the hedge and asset profile under shock scenarios. As the market dictates, management may choose to maintain hedge coverage ratio levels at or beyond the above thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns. In addition, while DV01 measures may remain within the range of our hedging strategy’s objective, actual changes in fair value of the derivatives and MSR portfolio may not offset to the same extent, due to non-parallel changes in the interest rate curve and the basis risk inherent in the MSR profile and hedging instruments, among other factors. We continuously evaluate the use of hedging instruments to strive to enhance the effectiveness of our interest rate hedging strategy.

Effective October 2021, we refined the scope of the hedge policy to allow for MSRs subject to LOI to be covered under a separate hedge coverage ratio requirement sufficient to preserve the economics of the intended transactions.

Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties and exchange-traded interest rate swap futures and interest rate options. TBAs, or To-Be-Announced securities, are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time-to-time, we enter into exchange-traded options contracts on Treasury futures, generally in a sell put and buy call option strategy. These derivative instruments are not designated as accounting hedges. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to optimize the use of third party derivatives. Such inter-segment derivatives are eliminated in our consolidated financial statements.

The derivative instruments are subject to margin requirements, posted as either initial margin or variation margin. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments. Changes in market factors, including interest rates, and our credit rating could require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.

Pipeline Hedging - Interest Rate Lock Commitments and Loans Held for Sale, at Fair Value

In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the commitment cancellation or expiration date or (ii) through the date of sale of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 90 days, with the majority of our commitments to borrowers for 60 days and our commitments to correspondent sellers for 7 days. Loans held for sale are generally funded and sold within 5 to 20 days. This interest rate exposure was not individually hedged until May 2021, but rather used as an offset to our MSR exposure and managed as part of our MSR macro-hedging strategy described above. Effective May 2021, we implemented a new pipeline hedging strategy, whereby the interest rate exposure of loans held for sale and interest rate lock commitments is economically hedged with derivative instruments, including forward sales of Agency TBAs. We report changes in fair value of these derivative instruments as gain or loss on economic hedge instruments within gain on loans held-for-sale in our consolidated statements of operations.

EBO and Loan Modification Hedging – Loans Held for Sale, at fair value

During the three months ended March 31, 2022, management started hedging its Ginnie Mae EBO loans as well as loans in process of modification pending redelivery/re-securitization to manage market risk due to increasing interest rates. Such interest rate exposure on these loans held for sale accounted for at fair value is economically hedged using forward trades of TBAs. Changes in fair value of these derivative instruments are reported as gain or loss on economic hedge instruments within Gain on loans held for sale, net in our consolidated statements of operations.

Foreign Currency Exchange Rate Risk

Our operations in India and the Philippines expose us to foreign currency exchange rate risk to the extent that our foreign exchange positions remain unhedged. Depending on the magnitude and risk of our positions we may enter into any forward exchange contracts to hedge against the effect of changes in the value of the India Rupee or Philippine Peso. We currently do not hedge our foreign currency exposure with derivative instruments. Foreign currency remeasurement exchange gains (losses) were $0.1 million and $0.2 million during the three months ended March 31, 2022 and 2021, respectively, and are reported in Other, net in the consolidated statements of operations.


Note 16 – Interest Expense


	Three Months Ended March 31,
	2022		2021
OFC Senior Secured Notes (1)	$	10,396	$	2,365
PHH and PMC senior notes	8,161		7,130
MSR financing facilities	7,804		4,572
Mortgage loan warehouse facilities	7,052		5,283
Advance match funded liabilities	2,707		4,496
SSTL	—		2,957

Escrow	1,755		1,649
	$	37,875	$	28,452

(1)Notes issued to Oaktree affiliates, inclusive of amortization of debt issuance costs and discount of $2.0 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively.


Note 17 – Basic and Diluted Earnings (Loss) per Share

Basic earnings or loss per share excludes common stock equivalents and is calculated by dividing net income or loss attributable to Ocwen common stockholders by the weighted average number of common shares outstanding during the period. We calculate diluted earnings or loss per share by dividing net income or loss attributable to Ocwen by the weighted average number of common shares outstanding including the potential dilutive common shares related to outstanding restricted stock awards, stock options and warrants as determined using the treasury stock method.


	Three Months Ended March 31,
	2022		2021
Basic earnings (loss) per share
Net income (loss)	$	58,082	$	8,543

Weighted average shares of common stock	9,215,122		8,688,009

Basic earnings (loss) per share	$	6.30	$	0.98

Diluted earnings (loss) per share
Net income (loss)	$	58,082	$	8,543

Weighted average shares of common stock	9,215,122		8,688,009
Effect of dilutive elements
Common stock warrants	278,320		34,309
Stock option awards	73		—
Common stock awards	168,052		155,174

Dilutive weighted average shares of common stock	9,661,567		8,877,492

Diluted earnings (loss) per share	$	6.01	$	0.96

Stock options and common stock awards excluded from the computation of diluted earnings (loss) per share
Anti-dilutive (1)	98,520		180,225
Market-based (2)	166,269		157,581

(1)Includes stock options and stock awards that are anti-dilutive based on the application of the treasury stock method.

(2)Shares that are issuable upon the achievement of certain market-based performance criteria related to Ocwen’s stock price.


Note 18 – Business Segment Reporting

Our business segments reflect the internal reporting that we use to evaluate operating performance of services and to assess the allocation of our resources. Our reportable business segments consist of Servicing, Originations, and Corporate Items and Other. During the three months ended March 31, 2022, there have been no changes to our business segments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, with the exception of certain reclassifications disclosed below.

Effective in the first quarter of 2022, we recognize revaluation gains on Fannie Mae MSRs purchased through the Agency Cash Window Program within the Servicing segment that were historically reported in the Originations segment. MSR valuation adjustments, net for the Servicing and Originations segments has been revised for prior periods to conform to the current segment presentation. Such revaluation gains were $3.6 million and $— (nil) for the three months ended March 31, 2022 and 2021, respectively.

Revenues and expenses directly associated with each respective business segments are included in determining its results of operations. We allocate certain expenses incurred by corporate support services to each business segment using various methodologies intended to approximate the utilization of such services. We allocate overhead costs incurred by corporate support services to the Servicing and Originations segments which incorporates the utilization of various measurements primarily based on time studies, personnel volumes and service consumption levels. Support services costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, costs related to our re-engineering initiatives, and other costs related to operating as a public company. We allocate a portion of interest income to each business segment, including interest earned on cash balances. Interest expense on direct asset-backed financings are recorded in the respective Servicing and Originations segments. We allocate interest expense on corporate debt from Corporate Items and Other to the Servicing segment and the Originations segment (starting in the fourth quarter of 2021) based on relative financing requirements. Effective in the first quarter of 2022, we no longer allocate interest expense on the OFC Senior Secured Notes to the Servicing and Originations segments. Interest expense allocated to the Servicing and Originations segments for prior periods has been revised to conform to the current period presentation. The interest expense allocation adjustment for the three months ended March 31, 2022 and 2021 is $10.2 million ($9.9 million Servicing and $0.3 million Originations) and $1.5 million (all Servicing), respectively.

As a result of our risk management strategy to hedge the interest rate risk of our net MSR portfolio, the fair value changes of third-party derivative instruments were reported within MSR valuation adjustments, net. For management segment reporting purposes, we established inter-segment derivative instruments to transfer the risks and allocate the associated fair value changes of derivatives between Servicing and Originations, and specifically between MSR valuation adjustments, net and Gain on loans held for sale, net (Gain/loss on economic hedge instruments). In the second quarter of 2021, we began separately hedging our MSR portfolio and pipeline. We may, from time to time, establish intersegment derivative instruments between our MSR and pipeline hedging strategies to optimize the use of third-party derivatives. The inter-segment derivative fair value changes are eliminated in the consolidated financial statements in the Corporate Eliminations column in the table below.


Financial information for our segments is as follows:
	Three Months Ended March 31, 2022
Results of Operations	Servicing		Originations		Corporate Items and Other		Corporate Eliminations (1)		Business Segments Consolidated
Servicing and subservicing fees	$	212,168	$	455	$	—	$	—	$	212,623
Reverse mortgage revenue, net	(11,853)		24,963		—		—		13,110
Gain (loss) on loans held for sale, net (1)	(2,701)		12,773		—		(13,277)		(3,206)
Other revenue, net	405		6,828		1,803		—		9,036
Revenue	198,019		45,019		1,803		(13,277)		231,563

MSR valuation adjustments, net (1)	48,290		1,065		—		13,277		62,632

Operating expenses	74,250		46,235		6,533		—		127,018

Other (expense) income:
Interest income	4,060		2,973		79		—		7,112
Interest expense	(23,101)		(4,234)		(10,540)		—		(37,875)
Pledged MSR liability expense	(86,909)		—		12		—		(86,897)
Earnings of equity method investee	12,003		—		—		—		12,003
Loss on extinguishment of debt	(33)		—		—		—		(33)


Other	715		(1,411)		534		—		(162)
Other income (expense), net	(93,265)		(2,672)		(9,915)		—		(105,852)

Income (loss) before income taxes	$	78,794	$	(2,823)	$	(14,645)	$	—	$	61,325

	Three Months Ended March 31, 2021
Results of Operations	Servicing		Originations		Corporate Items and Other		Corporate Eliminations (1)		Business Segments Consolidated
Servicing and subservicing fees	$	169,354	$	2,384	$	—	$	—	$	171,738
Reverse mortgage revenue, net	2,035		19,791		—		—		21,826
Gain on loans held for sale, net (1)	3,521		37,593		—		(35,393)		5,721
Other revenue, net	502		6,518		1,289		—		8,309
Revenue	175,412		66,286		1,289		(35,393)		207,594

MSR valuation adjustments, net (1)	(22,690)		8,505		—		35,393		21,208

Operating expenses	82,753		37,737		19,139		—		139,629

Other (expense) income:
Interest income	1,257		2,566		113		—		3,936
Interest expense	(18,816)		(3,552)		(6,084)		—		(28,452)
Pledged MSR liability expense	(37,883)		—		33		—		(37,850)


Loss on extinguishment of debt	—		—		(15,458)		—		(15,458)
Other	452		50		(212)		—		290
Other income (expense), net	(54,990)		(936)		(21,608)		—		(77,534)

Income (loss) before income taxes	$	14,979	$	36,118	$	(39,458)	$	—	$	11,639

(1)Corporate Eliminations for the three months ended March 31, 2022 and 2021 includes inter-segment derivatives eliminations of $13.3 million and $35.4 million, respectively, reported as Gain on loans held for sale, net with a corresponding offset in MSR valuation adjustments, net.


Total Assets	Servicing		Originations		Corporate Items and Other		Business Segments Consolidated
March 31, 2022	$	11,251,806	$	610,925	$	435,078	$	12,297,809

December 31, 2021	$	10,999,204	$	823,530	$	324,389	$	12,147,123

March 31, 2021	$	9,869,673	$	525,630	$	376,485	$	10,771,788


Depreciation and Amortization Expense	Servicing		Originations		Corporate Items and Other		Business Segments Consolidated
Three months ended March 31, 2022
Depreciation expense	$	171	$	107	$	2,324	$	2,602

Amortization of debt issuance costs and discount	203		—		2,336		2,539

Three months ended March 31, 2021
Depreciation expense	$	209	$	24	$	2,626	$	2,859

Amortization of debt issuance costs and discount	129		—		1,495		1,624


Note 19 – Regulatory Requirements

Our business is subject to extensive regulation and supervision by federal, state, local and foreign governmental authorities, including the Consumer Financial Protection Bureau (CFPB), HUD, the SEC and various state agencies that license and conduct examinations of our servicing and lending activities. In addition, we operate under a number of regulatory settlements that subject us to ongoing reporting and other obligations. From time to time, we also receive requests (including requests in the form of subpoenas and civil investigative demands) from federal, state and local agencies for records, documents and information relating to our servicing and lending activities. The GSEs (and their conservator, the Federal Housing Finance Authority (FHFA)), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits.

We must comply with a large number of federal, state and local consumer protection and other laws and regulations, including, among others, the CARES Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Telephone Consumer Protection Act (TCPA), the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act (FDCPA), the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, as well as individual state and local laws, and federal and local bankruptcy rules. These laws and regulations apply to all facets of our business, including, but not limited to, licensing, loan originations, consumer disclosures, default servicing and collections, foreclosure, filing of claims, registration of vacant or foreclosed properties, handling of escrow accounts, payment application, interest rate adjustments, assessment of fees, loss mitigation, use of credit reports, handling of unclaimed property, safeguarding of non-public personally identifiable information about our customers, and the ability of our employees to work remotely. These complex requirements can and do change as laws and regulations are enacted, promulgated, amended, interpreted and enforced, and the requirements applicable to our business have been changing especially rapidly in response to the COVID-19 pandemic. Most recently, the CFPB promulgated certain amendments to Regulation X (which implements RESPA) that became effective on August 31, 2021 and that impose certain additional COVID-19-related requirements with respect to loss mitigation, early intervention call requirements, and initiating new foreclosures before January 1, 2022. The CFPB also promulgated two sets of amendments to Regulation F (which implements the FDCPA), that each became effective on November 30, 2021 and that impose additional requirements regarding contacting borrowers and debt validation communications, among other things. In addition, the actions of legislative bodies and regulatory agencies relating to a particular matter or business practice may or may not be coordinated or consistent. The general trend among federal, state and local legislative bodies and regulatory agencies as well as state attorneys general has been toward increasing laws, regulations, investigative proceedings and enforcement actions with regard to residential real estate lenders and servicers.

In addition, a number of foreign laws and regulations apply to our operations outside of the U.S., including laws and regulations that govern licensing, privacy, employment, safety, payroll and other taxes and insurance and laws and regulations that govern the creation, continuation and the winding up of companies as well as the relationships between shareholders, our

corporate entities, the public and the government in these countries. Our foreign subsidiaries are subject to inquiries and examinations from foreign governmental regulators in the countries in which we operate outside of the U.S.

Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements and satisfying minimum net worth requirements and non-financial requirements such as satisfactory completion of examinations relating to the licensee’s compliance with applicable laws and regulations. We are also subject to seller/servicer obligations under agreements with the GSEs, HUD, FHA, VA and Ginnie Mae, including capital requirements related to tangible net worth, as defined by the applicable agency, an obligation to provide audited financial statements within 90 days of the applicable entity’s fiscal year end as well as extensive requirements regarding servicing, selling and other matters. We believe our licensed entities were in compliance with all of their minimum net worth requirements at March 31, 2022. Our non-Agency servicing agreements also contain requirements regarding servicing practices and other matters, and a failure to comply with these requirements could have a material adverse impact on our business. The most restrictive of the various net worth requirements for licensing and seller/servicer obligations referenced above is based on the UPB of assets serviced by PMC. Under the applicable formula, the required minimum net worth was $343.8 million at March 31, 2022. PMC’s adjusted net worth was $636.3 million at March 31, 2022. The most restrictive of the various liquidity requirements for licensing and seller/servicer obligations referenced above pertains to PMC and was $37.1 million at March 31, 2022. PMC’s liquid assets were $239.2 million at March 31, 2022.

We face regulatory and public scrutiny as an organization and have entered into a number of significant settlements with federal and state regulators and state attorneys general that have imposed additional requirements on our business. Our failure to comply with our settlement obligations to our regulators or with applicable federal, state, local and foreign laws, regulations, licensing requirements and agency guidelines could lead to (i) administrative fines, penalties, sanctions or litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) additional costs to address these matters and comply with the terms of any resulting resolutions, (vii) suspension or termination of our approved agency seller/servicer status, (viii) inability to raise capital or otherwise fund our operations and (ix) inability to execute on our business strategy, which could have a material adverse impact on our business, reputation, results of operations, liquidity and financial condition.

New York Department of Financial Services (NY DFS). We operate pursuant to certain regulatory requirements with the NY DFS, including obligations arising under a consent order entered into in March 2017 (the NY Consent Order) and the terms of the NY DFS’ conditional approval in September 2018 of our acquisition of PHH. The conditional approval includes reporting obligations and record retention and other requirements relating to the transfer of loans collateralized by New York property (New York loans) onto our servicing system, the Black Knight Financial Services, Inc. (Black Knight) LoanSphere MSP® servicing system (Black Knight MSP), and certain requirements with respect to the evaluation and supervision of management of both Ocwen and PMC. In addition, we were prohibited from boarding any additional loans onto the REALServicing system and we were required to transfer all New York loans off the REALServicing system by April 30, 2020. The conditional approval also restricts our ability to acquire MSRs with respect to New York loans, so that Ocwen may not increase its aggregate portfolio of New York loans serviced or subserviced by Ocwen by more than 2% per year. This restriction will remain in place until the NY DFS determines that all loans serviced on the REALServicing system have been successfully migrated to Black Knight MSP and that Ocwen has developed a satisfactory infrastructure to board sizable portfolios of MSRs. We transferred all loans onto Black Knight MSP in 2019 and no longer service any loans on the REALServicing system. We believe we have complied with all terms of the PHH acquisition conditional approval to date. We continue to work with the NY DFS to address matters they raise with us as well as to fulfill our commitments under the NY Consent Order and PHH acquisition conditional approval.

California Department of Financial Protection and Innovation (CA DFPI). In January 2015 and February 2017, Ocwen Loan Servicing, LLC (OLS) entered into consent orders with the CA DFPI (formerly known as the California Department of Business Oversight) relating to our alleged failure to produce certain information and documents during a routine licensing examination and relating to alleged servicing practices. We have completed all of our obligations under each of these consent orders. In October 2020, we entered into a consent order with the CA DFPI in order to resolve a legacy PHH examination finding and, in conjunction therewith, agreed to pay $62,000 (sixty-two thousand dollars) in penalties. We continue to work with the CA DFPI to address matters they raise with us.


Note 20 — Commitments

Unfunded Lending Commitments

HMBS Issuer Obligations

As an HMBS issuer, we are required to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of a reverse mortgage loan is equal to or greater than 98% of the maximum claim amount (MCA repurchases), or when they become inactive (the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments). Our subservicing clients bear the financial obligation and risks associated with purchasing loans out of securitization pools within the portfolio we subservice.

Activity with regard to HMBS repurchases, primarily MCA repurchases, are as follows:


	Three Months Ended March 31, 2022
	Active			Inactive			Total
	Number	Amount		Number	Amount		Number	Amount
Beginning balance	138	$	35,322	448	$	93,813	586	$	129,135
Additions	132	33,689		61	13,635		193	47,324
Recoveries, net (1)	(41)	(10,829)		(43)	(9,399)		(84)	(20,228)
Transfers	(8)	(1,837)		8	1,837		—	—
Changes in value	—	—		—	(1,089)		—	(1,089)
Ending balance	221	$	56,345	474	$	98,797	695	$	155,142

(1)Includes amounts received upon assignment of loan to HUD, loan payoff, REO liquidation and claim proceeds less any amounts charged off as unrecoverable.

NRZ Relationship

Our Servicing segment has exposure to concentration risk and client retention risk. As of March 31, 2022, our servicing portfolio included significant client relationships with NRZ which represented 19% and 30% of our servicing portfolio UPB and loan count, respectively, and approximately 68% of all delinquent loans that Ocwen services. Our Subservicing Agreements and Servicing Addendum with NRZ are in their Initial Terms that end in July 2022. Each of the agreements will automatically renew to July 2023, unless NRZ terminates or does not extend the terms as described below. At any time during the Initial Term, subject to proper notice (generally 180 days’ notice), the payment of termination fees and certain other provisions, NRZ has the rights to terminate the Subservicing Agreements and Servicing Addendum for convenience. Since NRZ did not provide a notice of termination in January 2022, 180 days’ prior to the end of the Initial Term, termination fees are no longer payable if NRZ provides a 180-day notice of termination before the end of the Initial Term, although NRZ will be required to pay deboarding fees that would cover Ocwen’s servicing transfer costs related to the effective date of termination that falls after the Initial Term. Following the Initial Term ending July 2022, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice. Absent any notice of extension, each of the agreements will terminate at the end of its Initial Term in July 2022 or the end of any three-month extended term. If NRZ exercised all or a significant portion of these termination rights, we might need to right-size certain aspects of our servicing business as well as the related corporate support functions. Receivables and Other liabilities recorded on our consolidated balance sheets as well as the impacts to our consolidated statements of operations in connection with our NRZ agreements are disclosed in Note 8 — MSR Transfers Not Qualifying for Sale Accounting. See further information related to the extension of the agreements with NRZ in Note 22 – Subsequent Events.


Note 21 – Contingencies

When we become aware of a matter involving uncertainty for which we may incur a loss, we assess the likelihood of any loss. If a loss contingency is probable and the amount of the loss can be reasonably estimated, we record an accrual for the loss.

In such cases, there may be an exposure to potential loss in excess of the amount accrued. Where a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. If a reasonable estimate of loss cannot be made, we do not accrue for any loss or disclose any estimate of exposure to potential loss even if the potential loss could be material and adverse to our business, reputation, financial condition and results of operations. An assessment regarding the ultimate outcome of any such matter involves judgments about future events, actions and circumstances that are inherently uncertain. The actual outcome could differ materially. Where we have retained external legal counsel or other professional advisers, such advisers assist us in making such assessments.

Litigation

In the ordinary course of business, we are a defendant in, or a party or potential party to, many threatened and pending legal proceedings, including proceedings brought by regulatory agencies (discussed further under “Regulatory” below), those brought on behalf of various classes of claimants, and those brought derivatively on behalf of Ocwen against certain current or former officers and directors or others, and those brought under the False Claims Act by private citizens on behalf of the U.S. In addition, we may be a party or potential party to threatened or pending legal proceedings brought by fair-housing advocates, commercial counterparties, including claims by counterparties in sales and purchases of loans, MSRs or other assets, parties on whose behalf we service or serviced mortgage loans, parties who provide ancillary services including property preservation and other post-foreclosure related services, and parties who provide or provided consulting or other services to Ocwen.

The majority of these proceedings are based on alleged violations of federal, state and local laws and regulations governing our mortgage servicing and lending activities, including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the FDCPA, the RESPA, the TILA, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the TCPA, the Equal Credit Opportunity Act, as well as individual state licensing and foreclosure laws and federal and local bankruptcy rules. Such proceedings include wrongful foreclosure and eviction actions, bankruptcy violation actions, payment misapplication actions, allegations of wrongdoing in connection with lender-placed insurance and mortgage reinsurance arrangements, claims relating to our property preservation activities, claims related to REO management, claims relating to our written and telephonic communications with our borrowers such as claims under the TCPA and individual state laws, claims related to our payment, escrow and other processing operations, claims relating to fees imposed on borrowers relating to inspection fees, foreclosure attorneys’ fees, reinstatement fees, foreclosure registration fees, payment processing, payment facilitation or payment convenience fees, claims related to ancillary products marketed and sold to borrowers, claims related to call recordings, claims regarding certifications of our legal compliance related to our participation in certain government programs, claims related to improper occupancy inspections, and claims related to untimely recording of mortgage satisfactions. In some of these proceedings, claims for substantial monetary damages are asserted against us. For example, we are currently a defendant in various matters alleging that (1) certain fees imposed on borrowers relating to payment processing, payment facilitation or payment convenience violate the FDCPA and similar state laws, (2) certain fees we assess on borrowers are improperly assessed and/or marked up improperly in violation of applicable state and federal law, (3) we breached fiduciary duties we purportedly owe to benefit plans due to the discretion we exercise in servicing certain securitized mortgage loans, and (4) certain legacy mortgage reinsurance arrangements violated RESPA. In the future, we are likely to become subject to other private legal proceedings alleging failures to comply with applicable laws and regulations, including putative class actions, in the ordinary course of our business.

In view of the inherent difficulty of predicting the outcome of any threatened or pending legal proceedings, particularly where the claimants seek very large or indeterminate damages, including punitive damages, or where the matters present novel legal theories or involve a large number of parties, we generally cannot predict what the eventual outcome of such proceedings will be, what the timing of the ultimate resolution will be, or what the eventual loss, if any, will be. Any material adverse resolution could materially and adversely affect our business, reputation, financial condition, liquidity and results of operations.

Where we determine that a loss contingency is probable in connection with a pending or threatened legal proceeding and the amount of our loss can be reasonably estimated, we record an accrual for the loss. We have accrued for losses relating to threatened and pending litigation that we believe are probable and reasonably estimable based on current information regarding these matters. Where we determine that a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued. Our accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $46.0 million at March 31, 2022. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at March 31, 2022.

As previously disclosed, we are subject to individual lawsuits relating to our FDCPA compliance and putative state law class actions based on the FDCPA and state statutes similar to the FDCPA. Ocwen agreed to a settlement in principle of a

putative class action, Morris v. PHH Mortgage Corp., filed in March 2020 in the United States District Court for the Southern District of Florida, alleging that PMC’s and legacy Ocwen’s practices of charging a fee to borrowers who voluntarily use certain optional expedited payment options violates the FDCPA and its state law analogs. Several similar putative class actions have been filed against PMC and Ocwen since July 2019. Following mediation, PMC agreed to the terms of a settlement agreement to resolve all claims in the Morris matter. During the preliminary approval process, several third parties, including a group of state Attorneys General, expressed opposition to the proposed settlement. As a result of this opposition, we also received requests for information from various state regulators and Attorneys General regarding our practices, to which we have responded in due course. On November 8, 2021, in a similar lawsuit also challenging our convenience fees practices in California, Torliatt v. PHH Mortgage Corp. (pending in the Northern District of California), the Court granted the plaintiff’s motion for class certification and certified a class of California borrowers. Because the certified Torliatt class overlaps with the putative class certified in Morris, the Morris settlement cannot move forward in its current form. On February 28, 2022, the Ninth Circuit Court of Appeals denied our petition seeking an appeal of the Torliatt class certification decision. Ocwen cannot predict the eventual outcome of the Torliatt or Morris proceedings or similar putative class actions filed against us.

In addition, we continue to be involved in legacy matters arising prior to Ocwen’s October 2018 acquisition of PHH, including a putative class action filed in 2008 in the United States District Court for the Eastern District of California against PHH and related entities alleging that PHH’s legacy mortgage reinsurance arrangements between its captive reinsurer, Atrium Insurance Corporation, and certain mortgage insurance providers violated RESPA. See Munoz v. PHH Mortgage Corp. et al. (Eastern District of California). In June 2015, the court certified a class of borrowers who obtained loans with private mortgage insurance through PHH’s captive reinsurance arrangement between June 2007 and December 2009. PHH asserted numerous defenses to the merits of the case. Following pre-trial developments in August 2020, the only issues remaining for trial were whether the plaintiffs had standing to bring their claims and whether the reinsurance services provided by PHH’s captive reinsurance subsidiary, Atrium, were actually provided in order for the safe harbor provision of RESPA to apply. On January 31, 2022, the Court denied a motion by the plaintiffs to enter new evidence and a motion by PHH to decertify the class, which motion PHH may renew if the case ultimately goes to trial. Following the entry of this order, at the request of the parties, the Court dismissed all of the plaintiffs’ claims for lack of standing and entered judgment in favor of PHH. The plaintiffs filed a notice of appeal on March 2, 2022. Ocwen will continue to vigorously defend itself. Our current accrual with respect to this matter is included in the $46.0 million legal and regulatory accrual referenced above. At this time, Ocwen is unable to predict the outcome of this lawsuit or the possible loss or range of loss, if any, associated with the resolution of such lawsuit. If our efforts to defend this lawsuit are not successful, our business, reputation, financial condition, liquidity and results of operations could be materially and adversely affected.

The same plaintiffs who filed a TCPA class action against Ocwen subsequently filed a similar class action against trustees of RMBS trusts based on vicarious liability for Ocwen’s alleged non-compliance with the TCPA. This class action filed against the trustees has settled, and while the trustees previously have indicated their intent to seek indemnification from Ocwen based on the vicarious liability claims, they have yet to take any formal action. Additional lawsuits have been and may be filed against us in relation to our TCPA compliance. However, a recent Supreme Court decision significantly undercuts the predominant theory of liability under the TCPA, and should provide even greater defenses on which Ocwen can rely when defending existing lawsuits or any additional lawsuits that may be filed. Nevertheless, given the recency of this Supreme Court decision, and the lack of opportunity for lower courts to interpret and apply it, it remains difficult to predict the possible loss or range of loss, if any, above the amount accrued or the potential impact such lawsuits may have on us or our operations. Ocwen intends to vigorously defend against these lawsuits. If our efforts to defend these lawsuits are not successful, our business, reputation, financial condition, liquidity and results of operations could be materially and adversely affected.

Ocwen is a defendant in a certified class action in the U.S. District Court in the Eastern District of California where the plaintiffs claim Ocwen marked up fees for property valuations and title searches in violation of California state law. See Weiner v. Ocwen Financial Corp., et al. Ocwen’s motion for summary judgment, filed in June 2019, was denied in May 2020; however, the court ruled that plaintiff’s recoverable damages are limited to out-of-pocket costs, i.e., the amount of marked-up fees actually paid, rather than the entire cost of the valuation that plaintiffs sought. Ocwen has moved to decertify the class. A jury trial was scheduled to commence March 7, 2022, but on December 22, 2021, the Court vacated the trial setting and associated pretrial conference due to a conflict with the Court’s trial schedule and indicated it would reset the dates after it issues a ruling on the decertification motion and a motion to compel testimony filed by the plaintiffs. At this time, Ocwen is unable to predict the outcome of this lawsuit or any additional lawsuits that may be filed, the possible loss or range of loss, if any, associated with the resolution of such lawsuits or the potential impact such lawsuits may have on us or our operations. Ocwen intends to vigorously defend against this lawsuit. If our efforts to defend this lawsuit are not successful, our business, financial condition liquidity and results of operations could be materially and adversely affected. Ocwen may have affirmative indemnification rights and/or other claims against third parties related to the allegations in the lawsuit. Although we may pursue these claims, we cannot currently estimate the amount, if any, of recoveries from these third parties.

We are currently involved in a dispute with a former subservicing client, HSBC Bank USA, N.A. (HSBC), which filed a complaint in the Supreme Court of the State of New York against PHH. See HSBC Bank USA, N.A. v. PHH Mortgage Corp.

(Supreme Court of the State of New York). HSBC’s claims relate to alleged breaches of agreements entered into under a prior subservicing arrangement and origination assistance agreement. In its complaint, HSBC also asserted a claim for fraud, which was dismissed by the Court. We believe we have strong factual and legal defenses to the remaining claims and are vigorously defending the action. Ocwen is currently unable to predict the outcome of this dispute or estimate the size of any loss which could result from a potential resolution reached through litigation or otherwise.

We have resolved three lawsuits pending in the Supreme Court of the State of New York with a purchaser of MSRs, Mr. Cooper (formerly Nationstar Mortgage Holdings Inc.), who alleged breaches of representations and warranties made by PHH in the MSR sale agreements. The Court dismissed Mr. Cooper’s claims without prejudice in two of the lawsuits. On November 15, 2021 we reached an agreement with Mr. Cooper to resolve the three lawsuits. The settlement amount was paid in January 2022 and this matter is now closed.

Over the past several years, lawsuits have been filed by RMBS trust investors alleging that the trustees and master servicers breached their contractual and statutory duties by (i) failing to require loan servicers to abide by their contractual obligations; (ii) failing to declare that certain alleged servicing events of default under the applicable contracts occurred; and (iii) failing to demand that loan sellers repurchase allegedly defective loans, among other things. Ocwen has received several letters from trustees and master servicers purporting to put Ocwen on notice that the trustees and master servicers may ultimately seek indemnification from Ocwen in connection with the litigations. Ocwen has not yet been impleaded into any of these cases, but it has produced and continues to produce documents to the parties in response to third-party subpoenas.

Ocwen has, however, been impleaded as a third-party defendant into five consolidated loan repurchase cases first filed against Nomura Credit & Capital, Inc. in 2012 and 2013. Ocwen is vigorously defending itself in those cases against allegations by the mortgage loan seller-defendant that Ocwen failed to inform its contractual counterparties that it had discovered defective loans in the course of servicing them and had otherwise failed to service the loans in accordance with accepted standards. Ocwen is unable at this time to predict the ultimate outcome of these matters, the possible loss or range of loss, if any, associated with the resolution of these matters or any potential impact they may have on us or our operations. If, however, we were required to compensate claimants for losses related to the alleged loan servicing breaches, then our business, reputation, financial condition, liquidity and results of operations could be adversely affected.

In addition, several RMBS trustees have received notices of events of default alleging material failures by servicers to comply with applicable servicing agreements. Although Ocwen has not been sued by an RMBS trustee in response to an event of default notice, there is a risk that Ocwen could be replaced as servicer as a result of said notices, that the trustees could take legal action on behalf of the trust certificate holders, or, under certain circumstances, that the RMBS investors who issue notices of event of default could seek to press their allegations against Ocwen, independent of the trustees. We are unable at this time to predict what, if any, actions any trustee will take in response to an event of default notice, nor can we predict at this time the potential loss or range of loss, if any, associated with the resolution of any event of default notice or the potential impact on our operations. If Ocwen were to be terminated as servicer, or other related legal actions were pursued against Ocwen, it could have an adverse effect on Ocwen’s business, reputation, financial condition, liquidity and results of operations.

Regulatory

We are subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions. We may also on occasion be subject to foreign regulatory actions in the countries where we operate outside the U.S. Where we determine that a loss contingency is probable in connection with a regulatory matter and the amount of our loss can be reasonably estimated, we record an accrual for the loss. Where we determine that a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. It is possible that we will incur losses relating to regulatory matters that materially exceed any accrued amount. Predicting the outcome of any regulatory matter is inherently difficult and we generally cannot predict the eventual outcome of any regulatory matter or the eventual loss, if any, associated with the outcome.

To the extent that an examination, audit or other regulatory engagement results in an alleged failure by us to comply with applicable laws, regulations or licensing requirements, or if allegations are made that we have failed to comply with applicable laws, regulations or licensing requirements or the commitments we have made in connection with our regulatory settlements (whether such allegations are made through administrative actions such as cease and desist orders, through legal proceedings or otherwise) or if other regulatory actions of a similar or different nature are taken in the future against us, this could lead to (i) administrative fines and penalties and litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) damage to our reputation, (vii) inability to raise capital or otherwise fund our operations and (viii) inability to execute on our business strategy. Any of these occurrences could increase

our operating expenses and reduce our revenues, hamper our ability to grow or otherwise materially and adversely affect our business, reputation, financial condition, liquidity and results of operations.

CFPB

In April 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, Ocwen Mortgage Servicing, Inc. (OMS) and OLS alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014. The CFPB’s claims include allegations regarding (1) the adequacy of Ocwen’s servicing system and integrity of Ocwen’s mortgage servicing data, (2) Ocwen’s foreclosure practices and (3) various purported servicer errors with respect to borrower escrow accounts, hazard insurance policies, timely cancellation of private mortgage insurance, handling of customer complaints, and marketing of optional products. The CFPB alleges violations of laws prohibiting unfair, deceptive or abusive acts or practices, as well as violations of other laws or regulations. The CFPB does not claim specific monetary damages, although it does seek consumer relief, disgorgement of allegedly improper gains, and civil money penalties. The parties participated in mediation in October 2020 and subsequently held additional settlement discussions. However, the parties were unable to reach a resolution of the litigation.

On March 4, 2021, the court issued an order granting in part and reserving ruling in part on Ocwen’s motion for summary judgment. In that order, the court granted Ocwen summary judgment on 9 of 10 counts in the CFPB’s amended complaint, finding that the CFPB’s allegations were barred under the principles of claim preclusion or res judicata to the extent those claims are premised on servicing activity occurring prior to February 26, 2017 and are covered by a 2014 Consent Judgment entered by the United States District Court for the District of Columbia. The CFPB subsequently filed its Second Amended Complaint to remove count 10 as well as allegations in counts 1-9 concerning servicing activity that occurred after February 26, 2017. On April 21, 2021, the court entered final judgment in our favor, denied all pending motions as moot, and closed the case. The CFPB thereafter filed a notice of appeal. Appellate briefing concluded August 26, 2021, and oral argument before the Eleventh Circuit occurred on February 10, 2022. On April 6, 2022, the Eleventh Circuit issued its opinion, largely adopting the district court’s decision precluding the CFPB from bringing claims covered by the National Mortgage Settlement, but vacating and remanding the case back to the district court to determine which, if any, claims are not covered and may still be brought by the CFPB. Either party has 45 days from the issuance of the Eleventh Circuit’s decision to seek rehearing. If neither party seeks a rehearing, then the case will go back to the trial court for further briefing, and Ocwen will continue to vigorously defend itself.

Our current accrual with respect to this matter is included in the $46.0 million legal and regulatory accrual referenced above. The outcome of the matters raised by the CFPB, whether through negotiated settlements, court rulings or otherwise, could potentially involve monetary fines or penalties or additional restrictions on our business and could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations.

State Licensing, State Attorneys General and Other Matters

Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, entry into a consent order, a suspension or ultimately a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition. In addition, we receive information requests and other inquiries, both formal and informal in nature, from our state financial regulators as part of their general regulatory oversight of our servicing and lending businesses, as well as from state attorneys general, the CFPB and other federal agencies, including the Department of Justice and various inspectors general. For example, we have received requests regarding the charging of certain fees to borrowers; the post-boarding process to verify loan and payment terms are properly implemented, calculated, and applied; bankruptcy practices; COVID-19-related forbearance and post-forbearance options; and Homeowner Assistance Fund participation and implementation. Many of our regulatory engagements arise from a complaint that the entity is investigating, although some are formal investigations or proceedings. The GSEs (and their conservator, FHFA), HUD, FHA, VA, Ginnie Mae, the United States Treasury Department, and others also subject us to periodic reviews and audits. We have in the past resolved, and may in the future resolve, matters via consent orders, payments of monetary amounts and other agreements in order to settle issues identified in connection with examinations or other oversight activities, and such resolutions could have material and adverse effects on our business, reputation, operations, results of operations and financial condition.

In April 2017 and shortly thereafter, mortgage and banking regulatory agencies from 29 states and the District of Columbia took administrative actions against OLS and certain other Ocwen companies that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. We resolved the majority of these matters in 2017 and resolved the remaining matters in early 2018 An additional state regulator brought legal action together with that state’s

attorney general, which we resolved in 2020. In resolving these matters, we entered into agreements that contained certain restrictions and commitments with respect to the operation of our business and our regulatory compliance activities, including certain restrictions and conditions relating to acquisitions of MSRs, a transition to an alternate loan servicing system from the REALServicing system, engagement of third-party auditors, escrow and data testing, error remediation, and financial condition reporting. We also provided certain borrower financial remediation and made payments to state regulators. We believe we have completed all material obligations under these agreements, although a few remaining reporting and other such obligations are ongoing.

On occasion, we engage with agencies of the federal government on various matters. For example, Ocwen was named as a defendant in a HUD administrative complaint filed by a non-profit organization in 2017 alleging discrimination in the manner in which Ocwen maintains REO properties in minority communities. In February 2018, this matter was administratively closed, and similar claims were filed in federal court. We believe these claims are without merit and intend to vigorously defend ourselves.

In 2017, Ocwen received a subpoena from the Office of the Special Inspector General for the Troubled Asset Relief Program requesting documents and information related to Ocwen’s participation in the Treasury Department’s Making Home Affordable Program. Ocwen has also received subpoenas that appear to relate to federal government agency initiatives relating to our industry generally, since we understand other lenders and servicers have received similar subpoenas. These include subpoenas in 2016 and 2017 from the Office of Inspector General of HUD requesting documentation related to HECM loans and lender-placed insurance arrangements with a mortgage insurer and a 2019 subpoena from the VA Office of the Inspector General requesting documentation related to the origination and underwriting of loans guaranteed by the Veterans Benefits Administration. In each instance, we have provided documents and information in response to these subpoenas.

Loan Put-Back and Related Contingencies

We have exposure to representation, warranty and indemnification obligations relating to our Originations business, including lending, sales and securitization activities, and relating to our servicing practices.

At March 31, 2022 and March 31, 2021, we had outstanding representation and warranty repurchase demands of $49.8 million UPB (270 loans) and $53.6 million UPB (275 loans), respectively. We review each demand and monitor through resolution, primarily through rescission, loan repurchase or make-whole payment.

The following table presents the changes in our liability for representation and warranty obligations and similar indemnification obligations:


	Three Months Ended March 31,
	2022		2021
Beginning balance (1)	$	49,430	$	40,374
Provision (reversal) for representation and warranty obligations	(3,556)		400
New production liability	674		1,273


Charge-offs and other (2)	(2,136)		(358)
Ending balance (1)	$	44,412	$	41,689

(1)The liability for representation and warranty obligations and compensatory fees for foreclosures is reported in Other liabilities (a component of Liability for indemnification obligations) on our unaudited consolidated balance sheets.

(2)Includes principal and interest losses realized in connection with repurchased loans, make-whole, indemnification and fee payments and settlements net of recoveries, if any.

We believe that it is reasonably possible that losses beyond amounts currently recorded for potential representation and warranty obligations and other claims described above could occur, and such losses could have an adverse impact on our results of operations, financial condition or cash flows. However, based on currently available information, we are unable to estimate a range of reasonably possible losses above amounts that have been recorded at March 31, 2022.

Other

Ocwen, on its own behalf and on behalf of various mortgage loan investors, is engaged in a variety of activities to seek payments from mortgage insurers for unpaid claims, including claims where the mortgage insurers paid less than the full claim amount. Ocwen believes that many of the actions by mortgage insurers were in violation of the applicable insurance policies and insurance law. In some cases, Ocwen has entered into tolling agreements, initiated arbitration or litigation, engaged in settlement discussions, or taken other similar actions. To date, Ocwen has settled with five mortgage insurers, and expects the ultimate outcome to result in recovery of additional unpaid claims, although we cannot quantify the likely amount at this time.

We may, from time to time, have affirmative indemnification and other claims against service providers and parties from whom we purchased MSRs or other assets. Although we pursue these claims, we cannot currently estimate the amount, if any, of further recoveries. Similarly, from time to time, indemnification and other claims are made against us by parties to whom we sold MSRs or other assets or by parties on whose behalf we service mortgage loans. We cannot currently estimate the amount, if any, of reasonably possible loss above amounts recorded.

Note 22 – Subsequent Events

On April 1, 2022, PMC boarded an additional approximately 19,000 reverse mortgage loans with a UPB of $4.1 billion onto our servicing platform under the five-year subservicing agreement executed on October 1, 2021 with Mortgage Assets Management, LLC (formerly known as Reverse Mortgage Solutions, Inc.) (MAM (RMS)). A purchase price of $6.9 million was paid on April 7, 2022 and recognized as a subservicing contract intangible asset to be amortized ratably over the five-year term of the subservicing contract based on portfolio runoff. This boarding is in addition to approximately 40,000 reverse mortgage loans with a UPB of $9.1 billion boarded during the first quarter of 2022.

On April 11, 2022, we entered into a warehouse line (master repurchase agreement) with a total borrowing capacity of $350.0 million, of which $100.0 million is committed, to finance loans held for sale, loans held for investment and REO at an interest rate of daily simple SOFR plus applicable margin.

On May 2, 2022, in connection with the Ginnie Mae early buyout program, we exercised our right to repurchase certain delinquent and aged loans with an aggregate UPB of $262 million out of their respective Ginnie Mae securitization pools. We concurrently sold the repurchased loans to third-parties, servicing release, at an estimated loss of approximately $9 million, net of the associated Ginnie Mae MSR fair value adjustment and advances, to be recognized in the second quarter of 2022.

On May 2, 2022, Ocwen entered into amendments to the following three agreements with certain subsidiaries of NRZ, which are disclosed in Note 8, MSR Transfers Not Qualifying for Sale Accounting: (a) Subservicing Agreement dated as of August 17, 2018 with NewRez LLC (formerly known as New Penn Financial, LLC) d/b/a Shellpoint Mortgage Servicing; (b) Subservicing Agreement dated as of July 23, 2017 with New Residential Mortgage LLC; and (c) New RMSR Agreement dated as of January 18, 2018 with New Residential Mortgage LLC, HLLS Holdings, LLC and HLSS MSR – EBO Acquisition LLC (collectively, the “Agreements”). The amendments modified the terms of the Agreements as follows: (i) the term of each Agreement is extended to December 31, 2023; (ii) subsequent term extensions will be automatic one-year renewals, unless Ocwen provides six months’ advance notice of termination, or the NRZ parties provide three months’ advance notice of termination at the end of the then-current term; and (iii) the parties will share a portion of some ancillary revenues that Ocwen has retained under the Agreements. In addition, the amendments provided for certain immaterial modifications and clarifications of existing terms. The amendments on May 2, 2022 do not result in the prior transfers of MSR from Ocwen to NRZ qualifying for sale accounting prior to December 31, 2023, absent any subsequent amendment.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts and unless otherwise indicated)


OVERVIEW

General

We are a financial services company that services and originates mortgage loans. We are a leading mortgage special servicer, servicing 1.4 million loans with a total UPB of $275.3 billion on behalf of more than 4,000 investors and 101 subservicing clients as of March 31, 2022. We service all mortgage loan classes, including conventional, government-insured and non-Agency loans. Our originations business is part of our balanced business model to generate gains on loan sales and profitable returns, and to support the replenishment and the growth of our servicing portfolio. Through our retail, correspondent and wholesale channels, we originate and purchase conventional and government-insured forward and reverse mortgage loans that we sell or securitize on a servicing retained basis. In addition, we grow our mortgage servicing volume through MSR flow purchase agreements, Agency Cash Window programs, bulk MSR purchase transactions, and subservicing agreements.

The table below summarizes the volume of Originations by channel, in the first quarter of 2022, compared with the preceding quarter and the corresponding quarter of the prior year. The volume of Originations is a key driver of the profitability of our Originations segment, together with margins, and a key driver of the replenishment and growth of our Servicing segment.


$ in billions	UPB
	Three Months Ended
	March 31, 2022		December 31, 2021		March 31, 2021
Mortgage servicing originations
Retail - Consumer Direct MSR (1)	$	0.66	$	0.71	$	0.56
Correspondent MSR (1)	2.67		6.07		2.63
Flow and Agency Cash Window MSR purchases (2)	4.09		3.39		5.99
Reverse mortgage servicing (3)	0.55		0.50		0.26
Total servicing	7.98		10.66		9.44

Bulk purchases - reverse (2)	0.21		—		—
Total servicing additions	8.18		10.66		9.44
Subservicing additions (4)	12.24		32.26		4.54
Total servicing and subservicing UPB additions	$	20.43	$	42.91	$	13.98

(1)Represents the UPB of loans that have been originated or purchased (funded UPB) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.

(2)Represents the UPB of loans for which the MSR is purchased.

(3)Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.

(4)Includes interim subservicing, including the volume of UPB associated with short-term interim subservicing for certain clients as a support to their originate-to-sell business, with $2.9 billion, $2.6 billion and $4.5 billion for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

In addition to interim subservicing, subservicing additions for the three months ended March 31, 2022 and December 31, 2021 in the table above include reverse mortgage loan subservicing and new subservicing on behalf of MAV. On October 1, 2021, in connection with the transaction with MAM (RMS), PMC became the subservicer for approximately 57,000 reverse mortgages, or approximately $14.3 billion in UPB pursuant to subservicing agreements with various clients, including MAM (RMS). Under the five-year subservicing agreement with MAM (RMS), we added subservicing of approximately 40,000 reverse mortgage loans or approximately $9.1 billion in UPB in the first quarter of 2022. In the second quarter of 2021, we launched our joint venture MSR investment with Oaktree with MAV. MAV purchased approximately $1.6 billion and $— (nil) GSE MSRs from unrelated third parties that PMC began subservicing in the fourth quarter of 2021 and first quarter of 2022, respectively.

The following table summarizes the average volume of our Servicing segment during the current quarter, compared with the preceding quarter and corresponding quarter of the prior year. The average volume of Servicing is a key driver of the profitability of our Servicing segment. The relative weight of performing and delinquent loans drives the gross revenue and expenses, and their timing. In the first quarter of 2022, we have increased our total average servicing portfolio by $11.9 billion, net of runoff as compared to the fourth quarter of 2021, mostly with subservicing volume generated from our MSR investment joint venture with Oaktree through MAV and reverse subservicing additions from MAM(RMS).


$ in billions	Average UPB
	Three Months Ended
	March 31, 2022		December 31, 2021		March 31, 2021
Owned MSR	$	124.9	$	131.9	$	90.4
NRZ	54.7		57.1		65.8
MAV	34.0		27.5		—
Subservicing	48.8		33.9		22.7
Reverse mortgage loans (owned)	7.2		6.9		6.7
Commercial and other servicing	0.9		1.4		0.7
Total serviced and subserviced UPB (average)	$	270.5	$	258.6	$	186.3

As of March 31, 2022, the total serviced and subserviced UPB amounted to $275.3 billion.

Financial Highlights

Results of operations for the first quarter of 2022

•Net income of $58 million, or $6.30 per share basic and $6.01 per share diluted

•Servicing fee revenue of $213 million

•Originations gain on sale of $13 million

•$66 million MSR valuation gain on our owned MSRs attributable to rate and assumption changes, net of hedging

Financial condition at the end of the first quarter of 2022

•Stockholders’ equity of $534 million, or $57.78 book value per common share

•MSR investment of $2.3 billion, with $73 million net additions in the quarter

•Liquidity position of $269 million

•Total assets of $12.3 billion

Business Initiatives

We have established the following key operating objectives to return to sustainable profitability and drive improved value for shareholders in 2022:

•Growing prudently and profitably, by expanding our client base and our product offerings, and by leveraging our MSR asset vehicle with Oaktree;

•Strengthening Consumer Direct performance, by expanding operating capacity and new customer acquisition capabilities;

•Improving our cost leadership position, by driving productivity and efficiencies, with our technology and continuous improvement initiatives;

•Expanding revenue opportunities, through an increased mix of higher margin products, services and channels; and

•Maintaining high quality operational execution and service excellence, through our technology and continuous improvement initiatives, and our commitment to employee engagement and customer satisfaction.

Results of Operations and Financial Condition

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.


Results of Operations Summary	Three Months Ended				% Change		Three Months Ended March 31, 2021		% Change
	March 31,		December 31,
	2022		2021
Revenue
Servicing and subservicing fees	$	212.6	$	219.2	(3)	%	$	171.7	24	%
Reverse mortgage revenue, net	13.1		23.5		(44)		21.8		(40)
Gain (loss) on loans held for sale, net	(3.2)		37.6		(109)		5.7		(156)
Other revenue, net	9.0		13.6		(34)		8.3		9
Total revenue	231.6		294.0		(21)		207.6		12

MSR valuation adjustments, net	62.6		(52.3)		(220)		21.2		195

Operating expenses
Compensation and benefits	68.0		88.5		(23)		68.3		—
Technology and communications	14.9		15.0		—		13.1		13
Servicing and origination	14.2		31.6		(55)		27.5		(48)
Professional services	12.2		20.6		(41)		17.3		(30)
Occupancy and equipment	10.1		10.8		(7)		8.9		14
Other expenses	7.7		7.9		(2)		4.6		69
Total operating expenses	127.0		174.5		(27)		139.6		(9)

Other income (expense)
Interest income	7.1		10.4		(31)		3.9		81
Interest expense	(37.9)		(41.4)		(8)		(28.5)		33
Pledged MSR liability expense	(86.9)		(41.1)		112		(37.9)		130
Earnings of equity method investee	12.0		2.3		413		—		n/m
Loss on extinguishment of debt	—		—		n/m		(15.5)		(100)


Other, net	(0.2)		(1.5)		(89)		0.3		(156)
Total other income (expense), net	(105.9)		(71.2)		49		(77.5)		37

Income (loss) before income taxes	61.3		(4.0)		n/m		11.6		427
Income tax expense (benefit)	3.2		(2.3)		(239)		3.1		5
Net income (loss)	$	58.1	$	(1.7)	n/m		$	8.5	580



Segment income (loss) before income taxes
Servicing	$	78.8	$	16.3	383	%	$	15.0	426
Originations	(2.8)		16.5		(117)		36.1		(108)
Corporate Items and Other	(14.6)		(36.8)		(60)		(39.5)		(63)
	$	61.3	$	(4.0)	n/m		$	11.6	427
n/m: not meaningful

Total Revenue

The below table presents total revenue by segment and at the consolidated level:


Revenue	Three Months Ended				% Change		Three Months Ended March 31, 2021		% Change
	March 31,		December 31,
	2022		2021
Servicing	$	198.0	$	222.5	(11)	%	$	175.4	13	%
Originations	45.0		69.5		(35)		66.3		(32)
Corporate	1.8		1.8		(2)		1.3		40
Total segment revenue	244.8		293.7		(17)		243.0		1
Inter-segment elimination (1)	(13.3)		0.2		n/m		(35.4)		(62)
Total revenue	$	231.6	$	294.0	(21)		$	207.6	12

(1)The fair value change of inter-segment economic hedge derivatives reported within Total revenue (Gain on loans held for sale, net) is eliminated at the consolidated level with an offset in MSR valuation adjustments, net.

Total segment revenue was $244.8 million for the three months ended March 31, 2022, $48.9 million or 17% lower than the three months ended December 31, 2021, driven by a $24.4 million revenue decrease from Servicing and a $24.4 million revenue decrease from Originations. The Servicing revenue decrease is mostly due to a $10.1 million decline in Gain on loans held for sale, net mostly due to lower gains on repurchased loans in connection with Ginnie Mae loan modifications and EBO activities associated with decreased volume and unfavorable impact of higher interest rates on redelivery gains that became minimal at March 31, 2022, and a $10.0 million decline in Reverse mortgage revenue, net primarily driven by unrealized losses on the HECM loan portfolio attributable to increasing interest rates. The decrease in Originations revenue is mostly due to lower loan production volume and margin for both the consumer direct and correspondent channels mostly due to rising interest rates at a historic pace during the first quarter of 2022.

As compared to the three months ended March 31, 2021, total segment revenue for the three months ended March 31, 2022 was $1.9 million or 1% higher, due to a $22.6 million increase in Servicing revenue offset by a $21.3 million decrease in Originations revenue. The increase in Servicing revenue is primarily due to a $42.8 million increase in Servicing and subservicing fees as the increase in our owned MSR servicing fee income due to portfolio growth more than offset the decline in fees collected on behalf of NRZ due to portfolio runoff. In addition, subservicing fees increased due to the boarding of reverse mortgage loans during the first quarter of 2022 and fourth quarter of 2021 under the five-year subservicing agreement with MAM (RMS). These increases were offset by a $13.9 million decline in Reverse mortgage revenue, net due to unrealized losses on the HECM loan portfolio, net of HMBS, attributable to market conditions, specifically fair value losses driven by increasing interest rates and widening yield spread, and a $6.2 million decrease in Gain on loans held for sale, net. The decrease in Originations revenue is primarily due to a $24.8 million decline in Gain on loans held for sale, net as a result of unfavorable market conditions for borrower refinancing due to rising interest rates at a historic pace during the first quarter of 2022.

Total revenue (after elimination of inter-segment derivative fair value changes) was $231.6 million for the three months ended March 31, 2022, $62.4 million or 21% lower than the three months ended December 31, 2021, driven by the segment revenue factors described above and the presentation of inter-segment hedging derivative gains and losses reported within MSR valuation adjustments, net at the consolidated level, as disclosed in Note 4 – Loans Held for Sale, Note 15 – Derivative Financial Instruments and Hedging Activities and Note 18 – Business Segment Reporting. Effective May 2021, we replaced our macro-hedging strategies with two distinct strategies to separately hedge the pipeline and our MSR exposure with third party derivatives. However, we continue to use inter-segment derivatives between the two strategies. Refer to Item 3 - Quantitative and qualitative disclosures about market risk for further detail.

See the respective Segment Results of Operations for additional information.

MSR Valuation Adjustments, Net

The table below presents the key components of MSR valuation adjustments, net:


Segment Results	Three Months Ended				Three Months Ended March 31, 2021
	March 31,		December 31,
	2022		2021
MSR realization of expected cash flows (1)	$	(72.8)	$	(75.1)	$	(49.1)
MSR fair value changes due to interest rate and assumption updates	201.2		27.3		75.5
Derivative fair value gain (loss)	(80.0)		(6.0)		(49.1)
Total Servicing	48.3		(53.8)		(22.7)
Originations - MSR fair value changes	1.1		1.7		8.5


Inter-segment elimination - derivative fair value gain (loss) (2)	13.3		(0.2)		35.4
MSR valuation adjustments, net	$	62.7	$	(52.3)	$	21.2

(1) The terms realization of expected cash flows and runoff may be used interchangeably within this discussion.

(2) The fair value change of inter-segment economic hedge derivatives reported within MSR valuation adjustments, net is eliminated at the consolidated level with an offset in Gain on loans held for sale, net (Total Revenue). Also refer to the description of the inter-segment derivative elimination in Note 18 – Business Segment Reporting.

We reported a $62.7 million gain in MSR valuation adjustments, net in the three months ended March 31, 2022. The gain is due to $72.8 million MSR portfolio runoff, $201.2 million fair value gains due to interest rate and assumption updates, $80.0 million loss on MSR hedging derivative instruments and a $13.3 million gain on derivatives hedging the pipeline within the Originations segment. MSR portfolio runoff represents the realization of expected cash flows and yield based on projected borrower behavior, including scheduled and unscheduled amortization of the loan UPB. MSR portfolio runoff decreased by $2.3 million mostly due to a lower owned MSR UPB and lower prepayments. The $201.2 million fair value gains due to interest rate and assumption updates is comprised of $145.7 million gain on our owned MSRs and $55.5 million gain on the MSRs transferred to NRZ and MAV (that did not achieve sale accounting). The fair value gain is mostly driven by rising interest rates in the first quarter of 2022, with the 10 year swap rate increasing by 83 basis points in the three months ended March 31, 2022. The NRZ and MAV transferred MSR fair value gain is largely offset by a corresponding fair value loss separately reported with MSR pledged liability expense.

Our MSR hedging policy is designed to reduce the volatility of the MSR portfolio fair value due to market interest rates. In the three months ended March 31, 2022, we reported a $145.7 million fair value gain on our owned MSR portfolio attributable to interest rate and assumption updates and an $80.0 million hedging derivative loss. The quarter-over-quarter fair value changes are mostly explained by interest rate changes, with an 83 basis point increase in the 10-year swap rate during the three months ended March 31, 2022. The changes in fair value of the MSR and economically hedging derivatives were not offset to the same extent as per their expected hedging sensitivity measures, mainly due to non-parallel changes in the interest rate curve, the basis risk inherent in the MSR profile and the available hedging instruments, and an over-hedge sensitivity profile in the first couple months of the first quarter of 2022. Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional information regarding our hedging programs.

For the three months ended March 31, 2021, we reported a $21.2 million gain in MSR valuation adjustments, net. The gain is mostly due to $49.1 million MSR portfolio runoff, $75.5 million MSR fair value gain due to interest rate and assumption updates, $49.1 million loss on MSR hedging derivative instruments, $8.5 million revaluation gain on MSR purchases reported in Originations and a $35.4 million gain on derivatives hedging the pipeline within the Originations segment. The $75.5 million fair value gains due to interest rate and assumption update is primarily comprised of a $73.9 million gain on our owned MSRs, and is mostly driven by increasing interest rates, with the 10-year swap rate increasing by 85 basis points. Fair value gains increased in the three months ended March 31, 2022 as compared to 2021 mostly due to a higher interest rate sensitive MSR portfolio, driven by the large bulk acquisitions of GSE MSRs in 2021. MSR portfolio runoff increased by $23.7 million in the three months ended March 31, 2022 as compared to 2021 mostly due to a higher MSR portfolio partially offset by lower prepayments.

See Segment Results of Operations - Servicing and Originations for additional information.

Compensation and Benefits

Compensation and benefits expense for the three months ended March 31, 2022 decreased $20.5 million, or 23%, as compared to the three months ended December 31, 2021, mostly due to lower incentive compensation. Incentive compensation decreased $22.1 million, largely due to an $18.3 million decrease in the fair value of cash-settled share-based awards as a result of a decrease in our common stock price during the quarter and related forfeitures. A $1.5 million decline in commissions,

mostly due to lower origination volumes, also contributed to the decrease in Compensation and benefits expense. Our total average headcount increased by 3% as compared to the three months ended December 31, 2021 resulting in a $1.3 million increase in salaries and benefits expense mostly attributed to the reverse servicing and reverse originations businesses to accompany their growth, more than offsetting the decreased headcount in forward servicing. While the Originations average headcount increased in the first quarter of 2022 as compared to the fourth quarter of 2021, the headcount of Forward Originations, mostly Consumer Direct, was reduced in March 2022 by approximately 15% and is expected to be further reduced in the second quarter of 2022 as part of our efforts to right size our resources to market opportunities. Overall, our offshore-to-total average headcount ratio remained constant at approximately 65% for both the three months ended March 31, 2022 and December 31, 2021.

As compared to the three months ended March 31, 2021, Compensation and benefits expense for the three months ended March 31, 2022 remained flat (decreased $0.3 million). The $11.8 million decline in incentive compensation due to an $11.0 million decrease in the fair value of cash-settled share-based awards as a result of a decrease in our common stock price, was offset by a $9.3 million increase in salaries and benefits due to an increase in average headcount and a $2.1 million increase in commissions attributed to higher loan production levels. Our total average headcount increased by 17%, and overall, our offshore-to-total average headcount ratio decreased from 69% in the three months ended March 31, 2021 to 65% in the three months ended March 31, 2022.

Servicing and Origination Expense

Servicing and origination expense for the three months ended March 31, 2022 decreased $17.4 million, or 55%, as compared to the three months ended December 31, 2021, with $15.5 million of the decrease attributed to Servicing and $1.8 million attributed to Originations driven by lower origination volumes. The $15.5 million decline in Servicing expense is primarily due to $4.8 million subservicer expense recorded in the fourth quarter of 2021, including costs associated with transferring the servicing of our owned reverse portfolio onto our platform, a $4.0 million release of provision for indemnification in the first quarter of 2022 due to a favorable settlement, and a $2.7 million decline in provision expense driven by lower government-insured claims, lower severity on advances.

As compared to the three months ended March 31, 2021, Servicing and origination expense for the three months ended March 31, 2022 decreased $13.3 million, or 48%, mostly attributed to the $13.7 million decline in Servicing. The Servicing expense decline is primarily due to a $4.0 million release of provision for indemnification in the first quarter of 2022 related to a favorable settlement, a $3.5 million decrease in satisfaction and interest on payoff expense attributable to lower payoff volume, a $3.4 million decline in provision expenses associated with decreased government-insured claim loss volumes, and a $2.6 million reduction in subservicing costs.

See Segment Results of Operations - Servicing for additional information.

Other Operating Expenses

Professional services expense for the three months ended March 31, 2022 decreased $8.5 million, or 41%, as compared to the three months ended December 31, 2021, primarily due to a $9.9 million of recoveries of prior year expenses in the first quarter of 2022. Other factors include the $2.7 million of expense recoveries and $1.5 million consulting services related to corporate strategy and business initiatives expenses in the fourth quarter of 2021.

As compared to the three months ended March 31, 2021, Professional services expense for the three months ended March 31, 2022 decreased $5.2 million, or 30%, primarily due to an $8.0 million decline in legal expenses offset in part by a $2.5 million increase in other professional services. The net decrease in legal expenses is largely due to $9.9 million of recoveries of prior year expenses in the first quarter of 2022, offset by a $2.1 million increase in expenses related to other legal matters. The increase in other professional services is driven by $3.5 million additional expense related to our reverse subservicing business offset by a $1.4 million decline explained by outsourced surge resources utilized during the first quarter of 2021 to support higher production volumes.

Occupancy and equipment expense for the three months ended March 31, 2022 increased $1.2 million, or 14%, as compared to the three months ended March 31, 2021 largely driven by a $1.5 million increase in postage and mailing expenses mostly as a result of the increase in the average number of loans serviced.

Technology and communication expense for the three months ended March 31, 2022 increased $1.8 million, or 13%, as compared to the three months ended March 31, 2021 due to higher costs in support of higher loan production volumes and recoveries of costs in the first quarter of 2021 related to the implementation of data solutions.

As compared to the three months ended March 31, 2021, Other expenses for the three months ended March 31, 2022 increased $3.1 million mainly due to an increase in advertising expense in our Reverse Originations business as part of our initiative to expand our origination platform and increase volumes.

Other Income (Loss)

The $3.3 million decrease in interest income during the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 is due to a decline in loan production volumes in our Originations segment. As compared to the three months ended March 31, 2021, interest income increased $3.2 million primarily attributable to higher loan production volumes.

Interest expense for the three months ended March 31, 2022 decreased $3.5 million, or 8%, as compared to the three months ended December 31, 2021, primarily due to lower average debt balance and lower cost of funds for our mortgage loan warehouse facilities.

As compared to the three months ended March 31, 2021, Interest expense for the three months ended March 31, 2022 increased $9.4 million, or 33%, a due to a $923.1 million or 65% higher average debt balance to finance our increased loan production volumes and MSR portfolio and $107.9 million or 21% higher average corporate debt with the issuance of senior secured notes as part of our corporate debt refinancing in the first and second quarters of 2021, partially offset by lower cost of funds on our asset backed financing facilities.

Pledged MSR liability expense for the three months ended March 31, 2022 increased $45.8 million, as compared to the three months ended December 31, 2021, largely due to a $49.6 million unfavorable fair value change driven by rising interest rates, and a $14.1 million loss to reflect the amendment to the subservicing agreement with MAV in March 2022. Fair value losses due to rates and assumptions of our MSR pledged liability are largely offset by fair value gains on the related transferred MSR asset, which are reported in MSR fair value adjustments, net.

Pledged MSR liability expense for the three months ended March 31, 2022 increased $49.0 million as compared to the three months ended March 31, 2021, primarily due to a $48.7 million fair value loss attributed to MAV mostly due to increased interest rates and a $14.1 million loss to reflect the amendment to the subservicing agreement with MAV in March 2022.

See Segment Results of Operations - Servicing for additional information.

Loss on debt extinguishment of $15.5 million for the three months ended March 31, 2021 was recognized in the first quarter of 2021 and resulted from our early repayment of the SSTL due May 2022, PHH 6.375% senior unsecured notes due August 2021, and PMC 8.375% senior secured notes due November 2022. The loss includes the write-off of unamortized debt issuance costs and discount, as well as contractual prepayment premiums totaling $9.8 million on the SSTL and PMC 8.375% senior secured notes.

Earnings of equity method investee represent our 15% share of MAV Canopy from May 3, 2021. The increase in earnings in the first quarter of 2022 is mostly due to the fair value gain recorded by MAV Canopy on its MSR portfolio due to rising interest rates. See Note 10 - Investment in Equity Method Investee and Related Party Transactions for further detail.

Income Tax Benefit (Expense)

During the three months ended March 31, 2022, we recognized $3.2 million of income tax expense on $61.3 million of pre-tax income. During the three months ended December 31, 2021, we recognized a $2.3 million income tax benefit on a $4.0 million pre-tax loss. Our effective tax rates for the three months ended March 31, 2022 and December 31, 2021 were 5.3% and 58.0%, respectively. The income tax expense recognized in the three months ended March 31, 2022 was driven primarily by projected income tax expense related to pre-tax earnings, partially offset by income tax benefit recognized related to the favorable resolution of an uncertain tax position. The income tax benefit recognized in the three months ended December 31, 2021 was primarily due to income tax benefit recognized related to the favorable resolutions of various uncertain tax positions.

For the three months ended March 31, 2021, we recognized income tax expense of $3.1 million on pre-tax income of $11.6 million, representing an effective tax rate of 26.6%. The income tax expense for the three months ended March 31, 2021 was driven by projected income tax expense related to pre-tax earnings. As compared with the three months ended March 31, 2021, income tax expense for the three months ended March 31, 2022 increased $0.1 million primarily due to higher pre-tax earnings offset by income tax benefit related to the favorable resolution of an uncertain tax position.

Under our transfer pricing agreements, our operations in India and Philippines are compensated on a cost-plus basis for the services they provide, such that even when we have a consolidated pre-tax loss from operations these foreign operations have taxable income, which is subject to statutory tax rates in these jurisdictions that are higher than the U.S. statutory rate of 21%.


Financial Condition Summary	March 31, 2022		December 31, 2021		$ Change		% Change
Cash	$	268.7	$	192.8	$	75.9	39	%
Restricted cash	76.3		70.7		5.6		8
MSRs, at fair value	2,323.3		2,250.1		73.1		3
Advances, net	730.0		772.4		(42.5)		(5)
Loans held for sale	725.1		928.5		(203.5)		(22)
Loans held for investment, at fair value	7,459.3		7,207.6		251.6		3
Receivables	213.5		180.7		32.8		18
Investment in equity method investee	34.9		23.3		11.6		50
Other assets	466.9		520.9		(54.1)		(10)
Total assets	$	12,297.8	$	12,147.1	$	150.7	1	%

Total Assets by Segment
Servicing	$	11,251.8	$	10,999.2	$	252.6	2	%
Originations	610.9		823.5		(212.6)		(26)
Corporate Items and Other	435.1		324.4		110.7		34
	$	12,297.8	$	12,147.1	$	150.7	1	%

HMBS-related borrowings, at fair value	$	7,118.8	$	6,885.0	$	233.8	3	%
Other financing liabilities, at fair value	872.0		805.0		67.1		8
Advance match funded liabilities	497.3		512.3		(15.0)		(3)
Mortgage loan warehouse facilities	959.1		1,085.1		(126.0)		(12)
MSR financing facilities, net	892.6		900.8		(8.1)		(1)

Senior notes, net	617.1		614.8		2.3		—
Other liabilities	806.6		867.5		(60.9)		(7)
Total liabilities	11,763.7		11,670.4		93.2		1	%

Total stockholders’ equity	534.1		476.7		57.4		12



Total liabilities and equity	$	12,297.8	$	12,147.1	$	150.7	1	%

Total Liabilities by Segment
Servicing	$	10,737.2	$	10,474.5	$	262.7	3	%
Originations	665.4		832.7		(167.3)		(20)
Corporate Items and Other	361.1		363.3		(2.2)		(1)
	$	11,763.7	$	11,670.4	$	93.2	1	%

Book value per share	$	57.78	$	51.77	$	6.02	12	%

Total assets increased $150.7 million, or 1%, between December 31, 2021 and March 31, 2022 due to a $251.6 million increase in Loans held for investment, mostly driven by our reverse mortgage origination and bulk acquisition, and a $73.1 million increase in our MSR portfolio mostly attributed to fair value gains due to rising interest rates, partially offset by a sale of MSRs to an unrelated third party in March 2022. Our loans held for sale portfolio declined $203.5 million due to lower forward loan production volumes. Servicing advances declined $42.5 million, mainly due to seasonal reduction of escrow balances. The $54.1 million decrease in other assets is mostly attributable to the decrease in contingent repurchase rights related to loans that have been repurchased from Ginnie Mae.

Total liabilities increased by $93.2 million, or 1%, as compared to December 31, 2021, with similar effects as described above. Our HMBS-related borrowings increased by $233.8 million due to the continued growth of our reverse mortgage business and its securitization. The $67.1 million increase in Other financing liabilities is primarily due to additional transfers of MSRs to MAV in the first quarter of 2022 which did not qualify for sale accounting and related fair value changes. Our borrowings under warehouse lines declined $126.0 million due to lower loan production volumes. Advance match funded

liabilities decreased $15.0 million consistent with the decline in servicing advances. Other liabilities declined $60.9 million mostly due to a decrease in the Ginnie Mae contingent repurchase rights of loans under forbearance.

Total equity increased $57.4 million during the three months ended March 31, 2022 mostly due to $58.1 million net income.

Key Trends

The following discussion provides information regarding certain key drivers of our financial performance. Also refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.

Servicing fee revenue - Our servicing fee revenue is a function of the volume being serviced - UPB for servicing fees and loan count for subservicing fees. We expect we will continue to replenish and grow our servicing portfolio through our multi-channel Originations platform and through MAV for the remainder of 2022. In addition, we continuously evaluate the relative mix between servicing and subservicing volume. With the acquisition of MAM (RMS) subservicing agreements in 2021 and the additional loans transferred onto our servicing platform in early 2022, reverse mortgage subservicing fee income is expected to grow.

Gain on sale of loans held for sale - Our gain on sale is driven by both volume and margin and is channel-sensitive, with consumer direct generating relatively higher margins than correspondent. The volume mix is expected to continue to shift to purchase as the volume of refinance activity by borrowers is expected to continue to decline, consistent with expected industry trends. While we continue to increase our recapture rate by improving our internal processes, we focus on cash-out, debt consolidation and other borrower solutions, in addition to new customer acquisitions. Based on industry origination volume projections for 2022, we expect increased competition and origination margins will continue to be under pressure until industry excess capacity can be eliminated. This will impose trade-offs between volumes and margins, and potential shifts among channels.

Reverse mortgage revenue, net - The reverse mortgage origination gain is driven by the same factors as gain on sale of loans held for sale, with smaller volumes in the reverse mortgage market and generally larger margins. With our experience and brand in the marketplace, we expect to continue to grow our volumes and maintain similar margins in each channel, however the channel mix may vary. The fair value of the net reverse servicing asset is expected to continue to follow market conditions, and is part of our forward MSR hedging strategy.

MSR valuation adjustments, net - Our net MSR fair value changes include multiple components. First, amortization of our investment is a function of the UPB, capitalized value of the MSR relative to the UPB, and the level of scheduled payments and prepayments. We expect the MSR realization of cash flows to increase in 2022 as we have recently grown our MSR portfolio. Second, MSR fair value changes are driven by changes in interest rates and assumptions, such as forecasted prepayments. Third, the MSR fair value changes are partially offset by derivative fair value changes that economically hedge the MSR portfolio. We are exposed to increased interest rate volatility due to our now larger MSR portfolio, including our more interest rate sensitive GSE MSR portfolio. We would expect MSR fair value gains, net of hedging, if interest rates continue to rise. Our hedging strategy provides only partial hedge coverage and we would expect MSR fair value losses if interest rates drop, albeit with a lower magnitude. Refer to the sensitivity analysis in Item 3 - Quantitative and Qualitative Disclosures About Market Risk for further detail.

Operating expenses - Compensation and benefits are a significant component of our cost-to-service and cost-to-originate and is directly correlated to headcount levels. Headcount in Servicing is primarily driven by the number of loans or UPB being serviced and subserviced, and by the relative mix of performing, delinquent and defaulted loans. As servicing volume is expected to modestly increase (see above), we expect a modest increase in our workforce with partial offset from an increased relative share of performing loans. We expect to swiftly right size and prudently manage our forward Originations headcount and operating expenses to align with funded volume in 2022. We expect our reverse Originations workforce to remain largely stable. Other operating expenses are expected to correlate with volumes, with some productivity and efficiencies expected through our technology and continuous improvement initiatives.

Stockholders’ equity - With the above considerations, we expect our businesses to generate net income and increase our equity in 2022, absent any significant adverse change in interest rates.


SEGMENT RESULTS OF OPERATIONS

Our activities are organized into two reportable business segments that reflect our primary lines of business - Servicing and Originations - as well as a Corporate Items and Other segment.


SERVICING

We earn contractual monthly servicing fees pursuant to servicing agreements, which are typically payable as a percentage of UPB, as well as ancillary fees, including late fees, modification incentive fees, REO referral commissions, float earnings and Speedpay/collection fees. We also earn fees under both subservicing and special servicing arrangements with banks and other institutions that own the MSRs. Subservicing and special servicing fees are earned either as a percentage of UPB or on a per-loan basis. Subservicing per-loan fees typically vary based on type of investor and on loan delinquency status.

As of March 31, 2022, we serviced 1.4 million mortgage loans with an aggregate UPB of $275.3 billion. The average UPB of loans serviced during the first quarter of 2022 increased by 5% or $11.9 billion compared to the fourth quarter of 2021, mostly driven by the growth in our subservicing portfolio. Compared to the three months ended March 31, 2021, the average UPB of loans serviced during the three months ended March 31, 2022 increased by 45% or $84.3 billion mostly due to MSR acquisitions, subservicing additions and increased MSR originations, offset in part by portfolio runoff. We manage the size of our servicing portfolio with our Originations business and by selectively purchasing MSRs based on capital allocation and financial return targets.

In May 2021, PMC entered into a subservicing agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV. One year after launch, MAV has become our second largest subservicing client. MAV provides us with a source of additional subservicing volume, either with the MSRs that MAV purchases outright from third parties or with the MSRs that MAV purchases from PMC but the transactions do not achieve sale accounting. We are currently discussing with Oaktree an upsize of MAV capacity currently capped at $250 million of capital and other modifications of our different agreements.

In addition, in October 2021, PMC acquired reverse mortgage subservicing contracts from MAM (RMS) and became its exclusive subservicer under a five-year subservicing agreement. PMC boarded an additional approximately 40,000 and 19,000 reverse mortgage loans onto our servicing platform in the first quarter of 2022, and on April 1, 2022, respectively.

NRZ remains our largest subservicing client, accounting for 19% and 30% of the UPB and loan count, respectively, in our servicing portfolio as of March 31, 2022. NRZ servicing fees retained by Ocwen represented approximately 12% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees remitted to NRZ and excluding ancillary income, for both the first quarter of 2022 and the fourth quarter of 2021. This compares to 21% for the first quarter of 2021. NRZ’s portfolio represents approximately 68% of all delinquent loans that Ocwen serviced, for which the cost to service and the associated risks are higher. Consistent with a subservicing relationship, NRZ is responsible for funding the advances we service for NRZ.

The financial performance of our servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR portfolio is carried at fair value, with changes in fair value recorded in earnings within MSR valuation adjustments, net. The fair value of our MSRs is typically correlated to changes in market interest rates; as interest rates decrease, the value of the servicing portfolio typically decreases as a result of higher anticipated prepayment speeds, and the reverse is true. The sensitivity of MSR fair value to interest rates is typically higher for higher credit quality loans, such as our Agency loans. Our Non-Agency portfolio is significantly seasoned, with an average loan age of approximately 16 years, exhibiting little response to movements in market interest rates. Our hedging strategy is designed to reduce the volatility of the MSR portfolio to interest rates.

For those MSR sale transactions with NRZ and MAV that do not achieve sale accounting treatment, we present on a gross basis the transferred MSR as an asset at fair value and the corresponding liability amount as a pledged MSR liability at fair value on our balance sheet. The changes in fair value of the MSR are reflected as MSR valuation adjustments, net and the corresponding changes in fair value of the pledged MSR liability are reported within Pledged MSR liability expense. Similarly, we present on a gross basis the total servicing fees collected on behalf of NRZ and MAV within Servicing and subservicing fees, net and the total servicing fee remittance to NRZ and MAV within Pledged MSR liability expense.

In the first quarter of 2022, our Servicing business continued to be impacted by the COVID-19 pandemic, with a large number of loans placed under forbearance. We continue to perform outreach activities with impacted borrowers to address extensions and exits of plans or to offer loan modifications. As of March 31, 2022, we managed 24,100 loans under forbearance, (or 1.8% of our total portfolio), 5,700 of which related to our owned MSRs, or 1.0% of our owned MSR servicing portfolio (excluding NRZ and MAV), a reduction of 15% and 16%%, respectively, compared to December 31, 2021.

Loan Resolutions

We have a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps homeowners stay in their homes and improves financial outcomes for mortgage loan investors. Reducing delinquencies also enables us to recover advances and recognize additional ancillary income, such as late fees, which we do not recognize on delinquent loans until they are brought current. Loan resolution activities address the pipeline of delinquent loans

and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”), or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. Loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon, or even forbid, loan modifications. To select an appropriate loan modification option for a borrower, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrower as well as external data, including recent broker price opinions to value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.

Our future financial performance will be less impacted by loan resolutions because, under our NRZ agreements, NRZ receives all deferred servicing fees. Deferred servicing fees related to delinquent borrower payments were $143.9 million at March 31, 2022, of which $114.8 million were attributable to NRZ agreements.

Advance Obligation

As a servicer, we are generally obligated to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For certain loans in non-Agency securitization trusts, we have the ability to cease making P&I advances and immediately recover advances previously made from the general collections of the respective trust if we determine that our P&I advances cannot be recovered from the projected future cash flows. With T&I and Corporate advances, we continue to advance if net future cash flows exceed projected future advances without regard to advances already made.

Most of our advances have the highest reimbursement priority (i.e., they are “top of the waterfall”) so that we are entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing the servicing advances. Most subservicing agreements, including our agreements with NRZ, provide for prompt reimbursement of any advances from the owner of the servicing rights.

Third-Party Servicer Ratings

Like other servicers, we are the subject of mortgage servicer ratings or rankings (collectively, ratings) issued and revised from time to time by rating agencies including Moody’s, S&P and Fitch. Favorable ratings from these agencies are important to the conduct of our loan servicing and lending businesses.

The following table summarizes our key servicer ratings:

PHH Mortgage Corporation (PMC)

Moody’s

S&P

Fitch

Residential Prime Servicer

SQ3

Average

RPS3

Residential Subprime Servicer

SQ3

Average

RPS3

Residential Special Servicer

SQ3

Average

RSS3

Residential Second/Subordinate Lien Servicer

SQ3

Average

RPS3

Residential Home Equity Servicer

—

RPS3

Residential Alt-A Servicer

—

RPS3

Master Servicer

SQ3+

Above Average

RMS3

Ratings Outlook

N/A

Stable

Date of last action

September 28, 2021

June 29, 2021

April 28, 2021

In addition to servicer ratings, each of the agencies will from time to time assign an outlook (or a ratings watch such as Moody’s review status) to the rating status of a mortgage servicer. A negative outlook is generally used to indicate that a rating “may be lowered,” while a positive outlook is generally used to indicate a rating “may be raised. On September 28, 2021, Moody’s upgraded the servicer quality (SQ) assessment for PMC as a master servicer of residential mortgage loans from SQ3 to SQ3+, reflecting solid reporting and remitting processes and proactive servicer oversight. On June 29, 2021, S&P affirmed PMC’s servicer rating as Average, raising management and organization ranking to Above Average. In addition, S&P raised PMC’s master servicer rating from Average to Above Average reflecting the industry experience of PMC’s management, multiple levels of internal controls to monitor operations, and resolution of regulatory actions, among other factors mentioned by S&P. On March 24, 2020, Fitch placed all U.S. RMBS servicer ratings on Negative outlook resulting from a rapidly

evolving economic and operating environment due to the sudden impact of the COVID-19 virus. On April 28, 2021, Fitch affirmed PMC’s servicer ratings and revised its outlook from Negative to Stable as PMC’s performance in this evolving environment has not raised any elevated concerns. According to Fitch, the affirmation and stable outlook reflected PMC’s diligent response to the coronavirus pandemic and its impact on servicing operations, effective enterprise-wide risk environment and compliance management framework, satisfactory loan servicing performance metrics, special servicing expertise, and efficient servicing technology. The ratings also consider the financial condition of PMC’s parent, Ocwen Financial Corporation.

The following table presents selected results of operations of our Servicing segment. The amounts presented are before the elimination of balances and transactions with our other segments:


	Three Months Ended				% Change		Three Months Ended March 31, 2021		% Change
	March 31,		December 31,
	2022		2021
Revenue



Servicing and subservicing fees	$	212.2	$	216.5	(2)	%	$	169.4	25	%
Gain (loss) on loans held for sale, net	(2.7)		7.4		(137)		3.5		(177)
Reverse mortgage revenue, net	(11.9)		(1.8)		549		2.0		(682)
Other revenue, net	0.4		0.4		13		0.5		(19)
Total revenue	198.0		222.5		(11)		175.4		13

MSR valuation adjustments, net	48.3		(53.8)		(190)		(22.7)		(313)

Operating expenses
Compensation and benefits	29.0		33.2		(13)		25.1		16
Servicing expense	10.8		26.2		(59)		24.5		(56)
Occupancy and equipment	7.9		7.8		1		6.5		21
Professional services	6.8		7.2		(5)		7.1		(4)
Technology and communications	6.6		6.8		(4)		5.7		14
Corporate overhead allocations	11.1		11.2		(1)		12.2		(9)
Other expenses	2.0		2.7		(24)		1.6		30
Total operating expenses	74.2		95.2		(22)		82.8		(10)

Other income (expense)
Interest income	4.1		3.3		22		1.3		223
Interest expense	(23.1)		(23.0)		1		(18.8)		23
Pledged MSR liability expense	(86.9)		(40.3)		116		(37.9)		129


Earnings of equity method investee	12.0		2.3		413		—		n/m
Other, net	0.7		0.4		77		0.5		58
Total other income (expense), net	(93.3)		(57.2)		63		(55.0)		70

Income before income taxes	$	78.8	$	16.3	383	%	$	15.0	426	%
n/m: not meaningful

The following tables provide selected operating statistics:


	March 31,		December 31,		% Change		March 31,		% Change
	2022		2021				2021
Assets Serviced
Unpaid principal balance (UPB) in billions:
Performing loans (1)	$	259.9	$	254.2	2	%	$	169.7	53	%
Non-performing loans	14.7		13.1		13		8.8		68
Non-performing real estate	0.7		0.7		(4)		0.9		(17)
Total	275.3		268.0		3		179.4		53	%

Conventional loans (2)	$	173.4	$	166.3	4	%	$	75.6	129	%
Government-insured loans	27.6		28.8		(4)		29.4		(6)
Non-Agency loans	74.4		72.8		2		74.3		—
Total	$	275.3	$	268.0	3	%	$	179.4	53	%

Servicing portfolio (3)	$	123.9	$	135.9	(9)	%	$	98.7	25	%
Subservicing portfolio
Subservicing - forward	40.4		29.4		37		16.3		148
Subservicing - reverse	22.2		13.9		60		—		n/m
Total subservicing	62.6		43.3		44		16.3		284
MAV (4)	35.3		33.0		7		—		n/m
NRZ (5) (6)	53.6		55.8		(4)		64.3		(17)
Total	$	275.3	$	268.0	3	%	$	179.4	53

Number (in 000’s):
Performing loans (1)	1,302.8		1,287.0		1	%	1,011.1		29	%
Non-performing loans
Non-performing loans - NRZ	30.4		30.7		(1)	%	31.3		(3)	%
Non-performing loans - Other	37.2		30.7		21		14.2		162
	67.6		61.4		10		45.5		49
Non-performing real estate	4.8		4.9		(2)		6.7		(29)
Total	1,375.1		1,353.3		2	%	1,063.2		29	%

Conventional loans (2)	713.2		686.5		4	%	344.3		107	%
Government-insured loans	161.7		168.1		(4)		180.2		(10)
Non-Agency loans	500.2		498.7		—		538.6		(7)
Total	1,375.1		1,353.3		2	%	1,063.2		29	%

Servicing portfolio	589.3		636.1		(7)	%	513.0		15	%
Subservicing portfolio
Subservicing - forward	142.9		105.6		35		67.5		112
Subservicing - reverse	91.8		54.7		68		—		n/m
Total subservicing	234.7		160.3		46		67.5		248
MAV	139.7		131.6		6		—		n/m
NRZ (5)	411.3		425.4		(3)		482.7		(15)
Total	1,375.1		1,353.4		2	%	1,063.2		29	%


	Three Months Ended						% Change		Three Months Ended March 31, 2021			% Change
	March 31, 2022			December 31, 2021
Prepayment speed (CPR) (7):
% Voluntary CPR	11.4		%	15.7		%	(27)	%	21.7		%	(100)	%

% Involuntary CPR	0.3			0.5			(40)		0.8			(100)

% Total CPR	14.8			19.1			(23)		25.2			(100)


Number of completed modifications (in 000’s)	4.0			3.9			3	%	4.8			(15)	%
Revenue recognized in connection with loan modifications	$	6.4		$	5.5		16	%	$	8.0		(20)	%

(1)Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2)Conventional loans include 70,938 and 73,340 prime loans with a UPB of $13.4 billion and $13.7 billion at March 31, 2022 and December 31, 2022, respectively, that we service or subservice. This compares to 85,479 prime loans with a UPB of $15.3 billion at March 31, 2021. Prime loans are generally good credit quality loans that meet GSE underwriting standards.

(3)Includes $7.3 billion UPB of reverse mortgage loans that are recognized in our consolidated balance sheet at March 31, 2022.

(4)Includes $8.5 billion UPB subserviced and $26.8 billion UPB of MSRs sold to MAV that did not achieve sale accounting treatment at March 31, 2022. Excludes subserviced loans with a UPB of $8.3 billion that have not yet transferred onto the PMC servicing system as of March 31, 2022.

(5)Loans serviced or subserviced pursuant to our agreements with NRZ or MAV.

(6)Includes $2.0 billion UPB of subserviced loans at March 31, 2022.

(7)Total 3-month % CPR includes voluntary and involuntary prepayments, as shown in the table, plus scheduled principal amortization.

The following table provides the rollforward of activity of our portfolio of mortgage loans serviced that includes MSRs, whole loans and subserviced loans, both forward and reverse:


	Amount of UPB ($ in billions)				Count (000’s)
	2022		2021		2022	2021
Portfolio at January 1	$	268.0	$	188.8	1,353.2	1,107.6
Additions (1) (2) (3)	31.5		13.5		78.1	49.4
MSR sales (3)	(11.1)		—		(0.1)	(0.1)
Servicing transfers	(2.3)		(10.9)		(9.0)	(42.5)
Runoff	(10.8)		(12.1)		(47.1)	(51.2)
Portfolio at March 31	$	275.3	$	179.4	1,375.1	1,063.2

(1)Additions include purchased MSRs on portfolios consisting of 184 loans with a UPB of $62.7 million that have not yet transferred to the PMC servicing system as of March 31, 2022. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio. The seller continues to subservice the loans on an interim basis between the transaction closing date and the servicing transfer date.

(2)Includes the volume UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans are boarded and deboarded within the same quarter.

(3)Includes MSRs sold to an unrelated third party consisting of 38,850 loans with a UPB of $11.1 billion that have not yet transferred out of the PMC servicing system as of March 31, 2022, and for which PMC is performing interim subservicing.

The following table provides a breakdown of our servicer advances:


	March 31, 2022								December 31, 2021
Advances by investor type	Principal and Interest		Taxes and Insurance		Foreclosures, bankruptcy, REO and other		Total		Principal and Interest		Taxes and Insurance		Foreclosures, bankruptcy, REO and other		Total
Conventional	$	3	$	48	$	5	$	56	$	2	$	66	$	7	$	75
Government-insured	1		46		24		71		1		55		23		79
Non-Agency	219		261		120		600		225		261		133		618
Total, net	$	223	$	354	$	150	$	727	$	228	$	381	$	164	$	772

The following table provides selected operating statistics related to our reverse mortgage loans reported within our Servicing segment:


	March 31,			December 31,			% Change		March 31,			% Change
	2022			2021					2021
Reverse Mortgage Loans
Unpaid principal balance (UPB) in millions:
Loans held for investment (1)	$	6,849.1		$	6,546.5		5	%	$	6,326.1		8	%
Active Buyouts (2)	57.8			36.1			60		27.0			114	%
Inactive Buyouts (2)	108.5			95.3			14		75.9			43	%
Total	$	7,015.4		$	6,677.9		5		$	6,429.0		9	%

Inactive buyouts % to total	1.55		%	1.43		%	8		1.18		%	31	%

Future draw commitments (UPB) in millions:	1,659.9			1,507.1			10		1,199.9			38	%

Fair value in millions:
Loans held for investment (1)	$	7,202.0		$	6,979.1		3		$	6,874.9		5	%
HMBS related borrowings	7,118.8			6,885.0			3		6,778.2			5
Net asset value	$	83.2		$	94.1		(12)		$	96.7		(14)	%
Net asset value to UPB	1.21		%	1.44		%			1.53		%

(1)Securitized loans only; excludes unsecuritized loans as reported within the Originations segment.

(2)Buyouts are reported as Loans held for sale, Accounts Receivable or REO depending on the loan and foreclosure status.

Servicing and Subservicing Fees


	Three Months Ended						Three Months Ended March 31, 2021
	March 31,		December 31,		% Change				% Change
	2022		2021
Loan servicing and subservicing fees:
Servicing	$	88.5	$	92.9	(5)	%	$	63.9	39	%
Subservicing	14.7		12.1		21		3.5		321
MAV	16.6		14.1		18		—		n/m
NRZ	67.1		71.1		(6)		80.4		(16)
Servicing and subservicing fees	187.0		190.3		(2)		147.8		27









Ancillary income	25.2		26.3		(4)		21.6		17
	$	212.2	$	216.5	(2)	%	$	169.4	25	%

The $4.4 million, or 2% decrease in total servicing and subservicing fees for the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 is primarily driven by a $4.0 million decline in fees collected on behalf of NRZ, due to portfolio runoff. The table above and fee structure reflects our strategy to grow our subservicing business, with a $2.5 million, or 21% increase in subservicing fees and the increased use of MAV to grow our servicing volume, with a $4.3 million, or 5% decrease in servicing fee income on our owned MSRs, partially offset by $2.5 million increase in MAV servicing fees. The decline in servicing fee income on our owned MSRs is due to a 5% decrease in our average UPB serviced, primarily driven by the sale of owned MSRs to MAV with a UPB of $3.5 billion (that did not achieve sale accounting). Subservicing fees increased primarily due to the boarding of approximately 40,000 additional reverse mortgage loans under the subservicing agreement with MAM (RMS).

The $42.8 million, or 25% increase in total servicing and subservicing fees in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is primarily driven by our successful volume growth strategy, selectively balanced between servicing and subservicing, and the gradual replacement of the NRZ volumes with new relationships and volumes sourced by our Originations business. Specifically, year over year, our servicing fee income increased by $24.6 million or 39% in our owned MSR portfolio, our subservicing fee income grew by $11.2 million, and we generated a new source of fee income with the $16.6 million servicing fee from MAV. We achieved a total $39.2 million fee increase, or 27%, despite a $13.2 million reduction in fees collected on behalf of NRZ due to portfolio runoff. The increase in servicing fees on our owned MSRs is due to a 36% increase in our average volume serviced, primarily driven by bulk acquisitions and the growth in our correspondent lending volumes. The $11.2 million increase in subservicing fees is mostly due to reverse mortgage loans under the subservicing agreement with MAM (RMS) effective in the fourth quarter of 2021. The average subservicing fee per loan increased from $13 to $27 dollars, driven by the inclusion of reverse mortgage loans that yield relatively higher compensation for both active and inactive loans. The $3.6 million increase in ancillary income is primarily due to growth in the serviced portfolio and boarding fees associated with reverse mortgage loans, as further discussed below.

The following table presents the respective drivers of residential loan servicing (owned MSR) and subservicing fees.


	Three Months Ended						Three Months Ended March 31, 2021
	March 31,		December 31,		% Change				% Change
	2022		2021
Servicing and subservicing fee
Servicing fee (owned MSR)	$	88.5	$	92.9	(5)	%	$	63.9	39	%
Average servicing fee (% of UPB)	0.27		0.27		—	%	0.26		2	%

Subservicing fee (excluding MAV and NRZ)	$	14.7	$	12.1	21		$	3.5	321	%
Average monthly fee per loan (in dollars) (1)	$	27	$	32	(15)		$	13	109	%

Residential assets serviced
Average UPB ($ in billions):
Servicing portfolio - Owned	$	133.0	$	140.1	(5)	%	$	97.8	36	%
Subservicing portfolio
Subservicing - forward	32.6		23.3		40		22.7		43	%
Subservicing - reverse	16.3		10.6		53		—		n/m
MAV	34.0		27.5		24		—		n/m
NRZ	54.7		57.1		(4)		65.8		(17)	%
Total	$	270.5	$	258.6	5	%	$	186.3	45	%


Average number (in 000’s):
Servicing portfolio	623.6		657.3		(5)	%	510.8		22	%
Subservicing portfolio
Subservicing - forward	116.1		85.8		35		90.3		29	%
Subservicing - reverse	65.1		41.8		56		—		n/m
MAV	135.4		112.2		21		—		n/m
NRZ	422.3		434.0		(3)		491.5		(14)	%
	1,362.4		1,331.2		2	%	1,092.6		25	%

(1)Excludes MAV portfolio and includes reverse subservicing in the three months ended March 31, 2022 and December 31, 2021.

The following table presents both servicing fees collected and subservicing fees retained by Ocwen under the NRZ agreements. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting for additional information.


NRZ servicing and subservicing fees	Three Months Ended						Three Months Ended March 31, 2021
	March 31, 2022			December 31, 2021
Servicing fees collected on behalf of NRZ	$	67.1		$	71.1		$	80.4
Servicing fees remitted to NRZ (1)	(47.8)			(50.7)			(56.4)
Retained subservicing fees on NRZ agreements (2)	$	19.4		$	20.4		$	24.0



Average NRZ UPB ($ in billions)	$	54.7		$	57.1		$	65.8
Average annualized retained subservicing fees as a % of NRZ UPB	0.14		%	0.14		%	0.15		%

(1)Reported within Pledged MSR liability expense. The NRZ servicing fee includes the total servicing fees collected on behalf of NRZ relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fees collected and remitted on a gross basis, with the servicing fees remitted to NRZ reported as Pledged MSR liability expense.

(2)Excludes ancillary income.

For the three months ended March 31, 2022, the net retained fee on our NRZ portfolio declined $1.0 million and $4.6 million as compared to the three months ended December 31, 2021 and the three months ended March 31, 2021, respectively. The decline in the NRZ fee collection and remittance is primarily driven by the decline in the average UPB of 4% due to portfolio runoff and prepayments. As the NRZ relationship is effectively a subservicing agreement, the COVID-19 environment, loans under forbearance and the fee collection do not impact our financial results to the same extent as for serviced loans with our owned MSRs.

The following table presents the detail of our ancillary income:


Ancillary Income	Three Months Ended						Three Months Ended March 31, 2021
	March 31, 2022		December 31, 2021		% Change				% Change
Late charges	$	10.0	$	9.5	5	%	$	9.2	9	%
Custodial accounts (float earnings)	1.0		1.2		(18)		1.0		(2)
Loan collection fees	2.9		3.2		(7)		2.9		—

Recording fees	3.3		4.1		(21)		3.9		(18)
Boarding and deboarding fees	1.3		2.6		(49)		0.9		53
GSE forbearance fees	0.2		0.2		(10)		0.6		(67)
Reverse subservicing ancillary fees	2.1		1.5		40		—		n/m
Other	4.4		3.9		12		3.0		45
Ancillary income	$	25.2	$	26.3	(4)	%	$	21.6	17	%

Ancillary income for the three months ended March 31, 2022 declined by $1.1 million as compared to the three months ended December 31, 2021 primarily because of lower boarding fees associated with the forward subservicing portfolio volume and recording fees due to lower payoffs, partially offset by a $2.2 million increase in reverse subservicing fees due to the additional boarding of reverse mortgage loans during the first quarter of 2022 under the subservicing agreement with MAM (RMS). As compared to the three months ended March 31, 2021, ancillary income increased by $3.6 million largely due to $4.1 million of reverse subservicing fees recognized during the three months ended March 31, 2022 on reverse mortgage loans boarded during the first quarter of 2022 and fourth quarter of 2021.

Gain (loss) on Loans Held for Sale, Net

We recognized a $2.7 million loss on loans held for sale, net for the three months ended March 31, 2022 a decrease of $10.1 million and $6.2 million as compared to the net gains recognized in the three months ended December 31, 2021 and the three months ended March 31, 2021, respectively. The $2.7 million loss in the first quarter of 2022 is primarily due to a $2.3 million loss on our first lien loan portfolio not eligible for sale to the Agencies and our second lien loans. The remaining $7.8 million and $3.9 million decline in the first quarter 2022 as compared to the fourth quarter of 2021 and first quarter of 2021, respectively, is due to lower gains on repurchased loans in connection with Ginnie Mae loan modifications and EBO activities associated with decreased volume and unfavorable impact of higher interest rates on redelivery gains that became minimal at March 31, 2022.

Reverse Mortgage Revenue, Net

Reverse mortgage revenue, net is the net change in fair value of securitized loans held for investment and HMBS-related borrowings. The following table presents the components of the net fair value change and is comprised of net interest income and other fair value gains or losses. Net interest income is primarily driven by the volume of securitized UPB as it is the interest income earned on the securitized loans offset against interest expense incurred on the HMBS-related borrowings, and represents our compensation for servicing the portfolio, that is typically a percentage of the outstanding UPB. Other fair value changes are primarily driven by changes in market-based inputs or assumptions. Lower interest rates generally result in favorable net fair value impacts on our HECM reverse mortgage loans and the related HMBS financing liability and higher interest rates generally result in unfavorable net fair value impacts.


	Three Months Ended						Three Months Ended March 31, 2021
	March 31, 2022		December 31, 2021		% Change				% Change
Net interest income (servicing fee)	$	5.7	$	5.0	14	%	$	5.0	15	%
Other fair value changes (1)	(17.6)		(6.8)		157		(2.9)		497
Reverse mortgage revenue, net (Servicing)	$	(11.9)	$	(1.8)	549	%	$	2.0	(682)

(1)Includes $3.8 million, $4.7 million and $5.6 million of realized gains on tail securitization for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

The decrease in Reverse mortgage revenue, net of $10.0 million and $13.9 million for the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 and three months ended March 31, 2021, respectively, is primarily due to unrealized losses on the HECM loan portfolio, net of HMBS, attributable to market conditions. Specifically, fair value losses are driven by increasing interest rates and widening yield spread directly impacting projected asset life and the tail value of the HECM reverse mortgage loans. Tail value declined by $6.8 million in the first quarter of 2022. Tails represent the future draws of borrowers, scheduled and unscheduled, as well as capitalized interest and are included in the fair value of the underlying loans. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach the 98% maximum claim amount liquidation event more quickly. Tails are securitized on a monthly basis and a widening yield spread results in lower cash gain on securitization. Note that the fair value changes of the net asset value between securitized HECM loans and HMBS (referred to as our reverse MSR) attributable to interest rate changes are effectively used as a hedge of our forward MSR portfolio. See further description of our hedging strategy in Item 3, Quantitative and Qualitative Disclosures about Market Risk.

Net interest income, that effectively represents our servicing fee increased in the three months ended March 31, 2022 as compared with the three months ended December 31, 2021 mostly due to increased UPB attributable to both origination and tail volume as well as a portfolio acquisition during the first quarter of 2022.

MSR Valuation Adjustments, Net

The following tables summarize the MSR valuation adjustments, net reported in our Servicing segment, with the breakdown of the total MSRs recorded on our balance sheet between our owned MSRs and the MSRs transferred to NRZ and MAV that did not achieve sale accounting treatment:


	Three Months Ended March 31, 2022						Three Months Ended December 31, 2021
	Total (1)		Owned MSR (1)		Pledged MSR (NRZ and MAV) (2)		Total (1)		Owned MSR (1)		Pledged MSR (NRZ and MAV) (2)

Runoff (3)	$	(72.8)	$	(44.6)	$	(28.3)	$	(75.1)	$	(46.1)	$	(29.0)
Rate and assumption change (1)	201.2		145.7		55.5		27.3		20.7		6.7
Hedging gain (loss)	(80.0)		(80.0)		—		(6.0)		(6.0)		—
Total	$	48.3	$	21.1	$	27.2	$	(53.8)	$	(31.4)	$	(22.4)



	Three Months Ended March 31, 2021
		Total (1)		Owned MSR (1)		Pledged MSR (NRZ) (2)

Runoff (3)		$	(49.1)	$	(31.5)	$	(17.6)
Rate and assumption change (1)		75.5		73.9		1.6
Hedging gain (loss)		(49.1)		(49.1)		—
Total		$	(22.7)	$	(6.7)	$	(16.1)

(1)Excludes gains of $1.1 million, $1.7 million, and $8.5 million in the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively, on the revaluation of MSRs purchased at a discount, that is reported in the Originations segment as MSR valuation adjustments, net. Effective in the first quarter of 2022, we recognize revaluation gains or losses on Fannie Mae MSRs purchased through the Agency Cash Window Program within the Servicing segment that were historically reported in the Originations segment. Segment results for prior periods have been recast to conform to the current segment presentation. Such revaluation gains were $3.6 million, $3.4 million and $— (nil) for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

(2)MSR sale transactions with NRZ and MAV that do not achieve sale accounting treatment. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting for further information.

(3)The terms runoff and realization of expected future cash flows may be used interchangeably within this discussion.

We reported a $48.3 million gain in MSR valuation adjustments, net for the three months ended March 31, 2022, comprised of a $21.1 million gain on our owned MSRs and a $27.2 million gain on the MSRs transferred to NRZ and MAV. The $21.1 million gain on our owned MSRs for the three months ended March 31, 2022 is comprised of a $145.7 million gain on the MSR portfolio attributable to rate and assumption changes, an $80.0 million hedging loss and $44.6 million MSR portfolio runoff. MSR portfolio runoff represents the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with projected voluntary prepayments. The fair value gain due to rate and assumption changes is primarily due to an increase in market interest rates (e.g., the 10-year swap rate increased by 83 basis points in the three months ended March 31, 2022), partially offset by a loss on assumption updates driven by prepayment model variance and other third-party valuation experts’ updates.

Our MSR hedging policy is designed to reduce the volatility of the MSR portfolio fair value due to market interest rates. The changes in fair value of the MSR and hedging derivatives were not offset to the same extent as per their expected hedging sensitivity measures, mainly due to non-parallel changes in the interest rate curve, the basis risk inherent in the MSR profile and the available hedging instruments, and an over-hedge sensitivity profile in the first two months of the first quarter of 2022. Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk for further detail on our hedging strategy and its effectiveness.

The $102.1 million improvement in MSR valuation adjustments, net for the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 is primarily due to a $173.9 million increase in the gain attributed to rate and assumption change, partially offset by a $74.0 million increase in the hedging loss. As compared to the three months ended March 31, 2021, MSR valuation adjustments, net improved $71.0 million due to a $125.7 million increase in the gain attributed to rate and assumption change offset by a $30.9 million increase in the hedging loss and a $23.7 million increase in runoff. The increased gain on rate and assumption change is primarily due to an increase in market interest rates. The increase in runoff is due to an increase in MSR portfolio size due to significant bulk MSR acquisitions in 2021.

The following table provides information regarding the changes in the fair value and the UPB of our portfolio of owned MSRs (excluding NRZ and MAV related MSRs) during the first quarter of 2022, with the breakdown by investor type.


	Owned MSR Fair Value (1)												Owned MSR UPB ($ in billions) (1)
	GSEs			Ginnie Mae			Non- Agency			Total			GSEs		Ginnie Mae		Non- Agency		Total
Beginning balance	$	1,198.5		$	109.4		$	114.6		$	1,422.5		$	98.5	$	12.0	$	17.4	$	127.9
Additions
New cap.	43.9			1.9			0.1			45.9			3.4		0.2		—		3.5
Purchases (2)	46.7			0.1			—			46.8			4.1		—		—		4.1
Sales/servicing transfers	—			—			(0.3)			(0.3)			—		—		—		—
Sales/calls (3)	(194.5)			—			—			(194.5)			(14.6)		—		—		(14.6)
Change in fair value:
Inputs and assumptions (2)	145.1			11.8			1.4			158.3			—		—		—		—
Realization of cash flows	(35.3)			(3.1)			(5.1)			(43.5)			(3.7)		(0.6)		(0.8)		(5.2)
Ending balance	$	1,204.4		$	120.1		$	110.7		$	1,435.2		$	87.6	$	11.6	$	16.6	$	115.7
Fair value (% of UPB)	1.38		%	1.04		%	0.67		%	1.24		%
Fair value multiple (4)	5.36		x	2.91		x	2.03		x	4.48		x

(1)See Note 7 – Mortgage Servicing and Note 8 — MSR Transfers Not Qualifying for Sale Accounting for further information on the NRZ and MAV portfolios.

(2)Mostly changes in interest rates, except for gains of $1.1 million on the revaluation of purchased MSRs, that are reported in the Originations segment.

(3)Includes $45.3 million fair value and $3.5 billion UPB of MSR sales to MAV that did not achieve sale accounting treatment.

(4)Multiple of average servicing fee and UPB.

The $27.2 million gain on the transferred MSRs not qualifying for sale accounting (transferred to NRZ and MAV) for the three months ended March 31, 2022 includes $55.5 million fair value gain attributable to rates and assumptions and $28.3 million runoff. The $55.5 million fair value gain attributable to rates and assumptions during the three months ended March 31, 2022 is mostly driven by the increase in market rates during the quarter. This MSR fair value gain is partially offset by a fair value loss recorded on the associated NRZ and MAV MSR pledged liability. The runoff is explained by the same factors underlying our owned MSR, discussed above, the transfers of MSRs to MAV beginning in the third quarter of 2021 and the decline in the NRZ MSR portfolio.

Compensation and Benefits


	Three Months Ended						Three Months Ended March 31, 2021
	March 31, 2022		December 31, 2021		% Change				% Change
Compensation and benefits	$	29.0	$	33.2	(13)	%	$	25.1		16	%

Average Employment
India and other	2,463		2,439		1	%	2,410			2
U.S.	1,023		927		10		681			50
Total	3,486		3,366		4		3,091			13

Compensation and benefits expense for the three months ended March 31, 2022 declined $4.2 million, or 13%, as compared to the three months ended December 31, 2021 primarily due to a $4.9 million decrease in incentive compensation that is mostly due to a $4.1 million decrease in the fair value of cash-settled share-based awards associated with the decrease in our common stock price during the quarter. Partially offsetting the decrease in incentive compensation, salaries and benefit expense increased $0.8 million due to a 4% increase in our average servicing headcount, mostly in support of the growth in our reverse mortgage subservicing business.

As compared to the three months ended March 31, 2021, Compensation and benefits expense for the three months ended March 31, 2022 increased $3.9 million, or 16%, primarily due to a $5.8 million increase in salaries and benefit expense as a result of the 13% increase in our average servicing headcount, mostly onshore. The increase in salaries and benefits was partially offset by a $2.3 million decrease in incentive compensation that was due to a $2.5 million decrease in the fair value of cash-settled share-based awards associated with the decrease in our common stock price. During the three months ended March 31, 2022, we serviced 25% more loans, on average, as compared to the three months ended March 31, 2021. The increase in servicing headcount primarily reflects the hiring of employees to support the growth of the reverse servicing platform, specifically the acquisition of reverse mortgage subservicing from MAM (RMS).

Servicing Expense

Servicing expense primarily includes claim losses and interest curtailments on government-insured loans, provision expense for advances and servicing representation and warranties, and certain loan-volume related expenses.

Servicing expense declined in the three months ended March 31, 2022 by $15.5 million, or 59%, as compared to the three months ended December 31, 2021, primarily due to $4.8 million subservicing expenses recorded in the fourth quarter of 2021, including costs associated with the transfer of our owned reverse portfolio onto our servicing platform, a $4.0 million release of provision for indemnification in the first quarter of 2022 due to a favorable settlement and a $2.7 million decline in provision expense driven by lower government-insured claims, lower severity on advances. Additional expense reductions include a $1.8 million decrease in satisfaction and interest on payoff expense attributable to lower portfolio size and payoff volumes, a $1.1 million decrease in loan-level fees associated with decreased owned portfolio volume and a $1.0 million expense recorded in the fourth quarter of 2021 related to call right transactions.

As compared to the three months ended March 31, 2021, Servicing expense for the three months ended March 31, 2022 declined $13.7 million, or 56%, primarily due to a $4.0 million release of provision for indemnification in the first quarter of 2022 related to a favorable settlement, a $3.5 million decrease in satisfaction and interest on payoff expense attributable to lower payoff volume, a $3.4 million decline in provision expenses associated with decreased government-insured claim loss volumes, and a $2.6 million reduction in subservicing costs. The reduction in subservicing expenses was driven by the termination of a third party subservicer for our reverse owned portfolio in the fourth quarter of 2021 and interim subservicing fees incurred on bulk acquisitions in the first quarter of 2021.

Other Operating Expenses

Other operating expenses (total operating expenses less Compensation and benefit expense and Servicing expense) for the three months ended March 31, 2022 decreased $1.3 million as compared to the three months ended December 31, 2021

primarily due to a decrease in bank fees due to decreased volume and a decrease in professional fees and communication expenses associated with the reverse servicing platform integration during the fourth quarter of 2021.

Other operating expenses increased by $1.3 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. Occupancy and equipment expense increased $1.4 million primarily due to a $1.4 million increase in printing and mailing expenses mostly as a result of the increase in the average number of loans serviced, The net $0.3 million decline in Professional services includes a $4.0 million decrease in legal expenses, mostly due to a $5.1 million recovery of legal expenses with a favorable settlement in the first quarter of 2022, offset by a $1.3 million increase in legal expenses related to other matters and a $3.2 million increase in other professional fees related to our reverse sub-servicing business.

Other Income (Expense)

Other income (expense) primarily includes net interest expense and the pledged MSR liability expense.


	Three Months Ended						% Change		Three Months Ended March 31, 2021			% Change
	March 31, 2022			December 31, 2021

Interest Expense
Advance match funded liabilities	$	2.7		$	2.7		1	%	$	4.5		(40)	%

Mortgage loan warehouse facilities	3.1			2.9			5	%	1.7			77	%
MSR financing facilities	7.8			8.1			(3)	%	4.6			71	%
Corporate debt interest expense allocation (1)	7.8			7.3			7		6.4			22
Escrow and other	1.8			2.0			(13)		1.6			7
Total interest expense	$	23.1		$	23.0		1	%	$	18.8		23	%

Average balances
Advances	$	745.8		$	749.8		(1)	%	$	772.7		(3)	%
Advance match funded liabilities	488.2			485.9			—		537.5			(9)

Mortgage loan warehouse facilities	369.8			324.6			14		157.0			136
MSR financing facilities	925.8			914.9			1		408.0			127

Effective average interest rate
Advance match funded liabilities	2.22		%	2.20		%	1	%	3.35		%	(34)	%

Mortgage loan warehouse facilities	3.32			3.59			(8)	%	4.41			(25)	%
MSR financing facilities	3.37			3.54			(5)	%	4.48			(25)	%

Facility costs included in interest expense	$	2.2		$	2.1		6	%	$	2.7		(20)	%

Average 1ML	0.23		%	0.09		%	143	%	0.12		%	97	%
Average SOFR	0.09		%	0.05		%	84	%	0.04		%	118	%

(1)Effective in the first quarter of 2022, interest expense on the OFC Senior Secured Notes is no longer allocated to the Servicing segment. Corporate debt interest expense allocation for prior periods has been recast to conform to the current period presentation. The interest expense allocation adjustment for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021 is $9.9 million, $9.0 million and $1.5 million, respectively.

Interest expense for the three months ended March 31, 2022 remained flat (increased by $0.1 million), as compared to the three months ended December 31, 2021, with the increase in our average debt balances mostly offset by a lower average funding cost.

As compared to the three months ended March 31, 2021, interest expense for the three months ended March 31, 2022 increased $4.3 million, or 23%, due to an overall increase in the average debt balances to finance the growth of the business, partially offset by a lower funding cost. The $3.1 million increase in interest expense on MSR financing facilities, $1.4 million increase in the corporate debt interest expense allocation and $1.3 million increase mortgage loan warehouse facilities, are mostly the result of larger MSR and Loans held for sale portfolios, partially offset by lower funding costs. These increases in interest expense were partially offset by a $1.8 million decline in interest expense on advance match funded facilities due to a lower average balance of advances and borrowings and a lower cost of funds.

Pledged MSR liability expense relates to the MSR transfers that do not qualify for sale accounting and are presented on a gross basis in our financial statements. See Note 8 — MSR Transfers Not Qualifying for Sale Accounting to the Unaudited Consolidated Financial Statements. Pledged MSR liability expense includes the servicing fee remittance for these transfers and the fair value changes of the pledged MSR liability.

The following table provides information regarding Pledged MSR liability expense:


	Three Months Ended
	March 31, 2022		December 31, 2021		March 31, 2021
Net servicing fee remittance (1)	$	61.4	$	62.1	$	56.4
Pledged MSR liability fair value (gain) loss (1)	27.2		(22.4)		(16.1)

Other	(1.7)		0.6		(2.5)
Pledged MSR liability expense	$	86.9	$	40.3	$	37.9

(1)See Note 8 — MSR Transfers Not Qualifying for Sale Accounting.

Pledged MSR liability expense for the three months ended March 31, 2022 increased $46.6 million, as compared to the three months ended December 31, 2021, largely due to a $48.7 million unfavorable fair value adjustment on the Pledged MSR liability in the first quarter of 2022, driven by rising interest rates. In addition, we recorded a $14.1 million fair value loss as a result of the amendment in March 2022 of the MAV Subservicing agreement (as a change in the present value of future contractual cash flows). Effective March 1, 2022, PMC and MAV amended certain provisions of the subservicing agreement to adjust down the ancillary fee retained by PMC. MAV represents our second largest subservicing client and a strategic relationship; the amendment is expected to enhance the competitiveness of MAV when buying MSRs and generate additional subservicing volume to PMC. Fair value adjustments of our MSR pledged liability (losses in the first quarter of 2022) are partially offset by fair value adjustments (gains) to the related MSR asset, which are recorded in MSR valuation adjustments, net. Refer to the above discussions of MSR valuation adjustments, net (Pledged MSR) and Servicing and subservicing fees (NRZ and MAV).

Pledged MSR liability expense for the three months ended March 31, 2022 increased $49.0 million, as compared to the three months ended March 31, 2021, primarily due to a $43.3 million increase in unfavorable fair value change on the pledged MSR liability and a $5.0 million increase in net servicing fee remittance. These changes are largely driven by the same factors discussed above. In addition, the increase in net servicing fee remittance is due to the launch of MAV in the second half of 2021 and the associated recognition of the MAV pledged MSR liability, that is more interest rate sensitive than the NRZ pledged MSR liability.


ORIGINATIONS

We originate and purchase loans and MSRs through multiple channels, including retail, wholesale, correspondent, flow MSR purchase agreements, the Agency Cash Window and Co-issue programs and bulk MSR purchases.

We originate and purchase conventional loans (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans) and government-insured (FHA or VA) forward mortgage loans. The GSEs and Ginnie Mae guarantee these mortgage securitizations. We originate HECM loans, or reverse mortgages, that are mostly insured by the FHA and we are an approved issuer of HMBS that are guaranteed by Ginnie Mae.

Within retail, our consumer direct channel for forward mortgage loans focuses on targeting existing servicing customers by offering them competitive mortgage refinance opportunities, where permitted by the governing servicing and pooling agreement. In doing so, we generate revenues for our forward lending business and protect the servicing portfolio by retaining these customers. A portion of our servicing portfolio is susceptible to refinance activity during periods of declining interest rates. Origination recapture volume and related gains are a natural economic hedge, to a certain degree, to the impact of declining MSR values as interest rates decline. To the extent we refinance a loan underlying the MSRs subject to the MAV Subservicing Agreement, we are obligated to transfer such recaptured MSR to MAV under the terms of the Joint-Marketing Agreement. In addition to refinance activities, our Consumer Direct channel targets cash-out, debt consolidation, mortgage insurance premium reduction, and new customer acquisition.

Our forward lending correspondent channel drives higher servicing portfolio replenishment. We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis. We offer correspondent sellers the choice to take out mandatory or best efforts contracts, under which the seller's obligation to deliver the mortgage loan becomes mandatory only when and if the mortgage is closed and funded. As of March 31, 2022, we have relationships with 461 approved correspondent sellers, or 23 new sellers since December 31, 2021.

We originate and purchase reverse mortgage loans through our retail, wholesale and correspondent lending channels under the guidelines of the HECM reverse mortgage insurance program of the FHA. Loans originated under this program are generally insured by the FHA, which provides protection against risk of borrower default.

After origination, we package and sell the loans in the secondary mortgage market, through GSE and Ginnie Mae securitizations on a servicing retained basis. Origination revenue mostly includes interest income earned for the period the loans are held by us, gain on sale revenue, which represents the difference between the origination or purchase value and the sale value of the loan including its MSR value, and fee income earned at origination. As the securitizations of reverse mortgage loans do not achieve sale accounting treatment and the loans are classified as loans held for investment, at fair value, reverse mortgage revenues include the fair value changes of the loan from lock date to securitization date.

We provide customary origination representations and warranties to investors in connection with our GSE loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. We recognize the fair value of the liability for our representations and warranties at the time of sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the mortgage loan investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. We actively monitor our counterparty risk associated with our network of correspondent lenders-sellers.

We purchase MSRs through flow purchase agreements, the Agency Cash Window programs and bulk MSR purchases. The Agency Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans to the respective agency and sell the MSR to the winning bidder servicing released. In addition, we partner with other originators to replenish our MSRs through flow purchase agreements. We do not provide any origination representations and warranties in connection with our MSR purchases through MSR flow purchase agreements or Agency Cash Window programs. As of March 31, 2022, we have relationships with 184 approved sellers through the Agency Cash Window co-issue programs, or 30 new sellers since December 31, 2021.

We initially recognize our MSR origination with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment at fair value once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment. However, effective first quarter of 2022, we report MSRs purchased through the Fannie Mae Cash Window program and the associated economics in our Servicing segment upon acquisition, as such MSRs are transferred to MAV monthly under an MSR flow sale agreement and subserviced by PMC. Segment results for prior periods have been recast as applicable to conform to the current segment presentation. See the “MSR Valuations Adjustments, net” section below for additional information.

We source additional servicing volume through our subservicing and interim servicing agreements, through our existing relationships and our enterprise sales initiatives. We do not report any revenue or gain associated with subservicing within the Originations segment as the impact is captured in the Servicing segment. However, sales efforts and certain costs - marginal compensation and benefits - are managed and reported within the Originations segment.

For the first quarter of 2022, our Originations business originated or purchased forward and reverse mortgage loans with a UPB of $3.3 billion and $547 million, respectively. In addition, we purchased $4.1 billion UPB MSR through the Agency Cash Window and flow purchase programs during the first quarter of 2022.

The following table presents the results of operations of our Originations segment. The amounts presented are before the elimination of balances and transactions with our other segments:


	Three Months Ended				% Change		Three Months Ended March 31, 2021		% Change
	March 31,		December 31
	2022		2021
Revenue
Gain on loans held for sale, net	$	12.8	$	30.0	(57)	%	$	37.6	(66)	%
Reverse mortgage revenue, net	25.0		25.3		(1)		19.8		26
Other revenue, net (1)	7.3		14.1		(48)		8.9		(18)
Total revenue	45.0		69.5		(35)		66.3		(32)

MSR valuation adjustments, net (2)	1.1		1.7		(35)		8.5		(87)

Operating expenses
Compensation and benefits	28.5		29.7		(4)		21.9		30
Origination expense	3.5		5.3		(34)		2.8		27
Occupancy and equipment	1.6		2.1		(26)		1.5		6
Technology and communications	2.5		3.1		(21)		1.7		50
Professional services	1.7		2.7		(36)		3.1		(45)
Corporate overhead allocations	5.3		5.2		1		5.0		4
Other expenses	3.2		2.7		18		1.8		78
Total operating expenses	46.2		50.9		(9)		37.7		23

Other income (expense)
Interest income	3.0		6.9		(57)		2.6		16
Interest expense (3)	(4.2)		(7.5)		(43)		(3.6)		19

Other, net	(1.4)		(3.1)		(55)		0.1		n/m
Total other income (expense), net	(2.7)		(3.7)		(28)		(0.9)		186

Income (loss) before income taxes	$	(2.8)	$	16.5	(117)	%	$	36.1	(108)	%

(1)Includes $0.5 million, $2.6 million and $2.4 million of ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level for the three months ended March 31, 2022, December 31, 2021and March 31, 2021, respectively.

(2)Effective first quarter of 2022, we report MSRs purchased through the Fannie Mae Cash Window program and the associated economics in our Servicing segment upon acquisition, as such MSRs are transferred to MAV monthly under an MSR flow sale agreement and subserviced by PMC. Segment results for prior periods have been recast as applicable to conform to the current segment presentation. The MSR valuation adjustments, net reclassified to the Servicing segments for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021 are $3.6 million, $3.4 million and nil, respectively.

(3)Effective in the first quarter of 2022, interest expense on the OFC Senior Secured Notes is no longer allocated to the Originations segment. Corporate debt interest expense allocation for prior periods has been recast to conform to the current period presentation. The interest expense allocation adjustment for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021 is $0.3 million, $0.5 million and nil, respectively.

The following table provides selected operating statistics for our Originations segment:


	Three Months Ended						% Change		Three Months Ended March 31, 2021			% Change
	March 31,			December 31,
	2022			2021

Loan Production by Channel
Forward loans
Correspondent	$	2,674.0		$	6,068.3		(56)%		$	2,626.8		2%

Consumer Direct	662.8			705.3			(6)%		563.4			18
	$	3,336.7		$	6,773.7		(51)%		$	3,190.2		5%

% Purchase production	40		%	40		%	(1)		15		%	167

% Refinance production	60			60			1		85			(29)

Reverse loans (1)
Correspondent	$	281.5		$	242.8		16	%	$	150.0		88	%
Wholesale	118.2			94.9			24		53.6			120
Retail	147.3			159.4			(8)		59.5			148
	$	547.0		$	497.1		10	%	$	263.1		108	%

MSR Purchases by Channel
Agency Cash Window / Flow MSR	$	4,091.5		$	3,388.0		21%		$	5,985.2		(32)%
Bulk reverse purchases	209.1			—			n/m		—			n/m
	$	4,300.6		$	3,388.0		27		$	5,985.2		(28)

Total	$	8,184.3		$	10,658.8		(23)%		$	9,438.5		(13)%

Short term loan commitment (at period end)
Forward loans	$	569.8		$	1,022.0		(44)	%	$	916.9		(38)	%
Reverse loans	47.8			63.3			(25)		50.2			(5)

Average Employment
U.S.	734			715			3		577			27
India and other	579			525			10		280			107
Total	1,313			1,240			6	%	857			53	%

(1)Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment.

Gain on Loans Held for Sale

The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volume and margins (excluding fees that are presented in Other revenue, net):


	Three Months Ended						% Change		Three Months Ended March 31, 2021			% Change
	March 31,			December 31,
	2022			2021
Gain on Loans Held for Sale (1)
Correspondent	$	0.1		$	4.8		(97)	%	$	3.5		(96)	%
Consumer Direct	12.6			25.2			(50)		34.1			(63)
	$	12.8		$	30.0		(57)	%	$	37.6		(66)	%

% Gain on Sale Margin (2)
Correspondent	0.01		%	0.08		%	(94)	%	0.13		%	(96)	%
Consumer Direct	1.91			3.58			(47)		6.05			(68)
	0.38		%	0.44		%	(14)	%	1.18		%	(68)	%

Origination UPB (3)
Correspondent	$	2,674		$	6,068		(56)	%	$	2,627		2	%
Consumer Direct	663			705			(6)		563			18
	$	3,337		$	6,774		(51)	%	$	3,190		5	%

(1)Includes realized gains on loan sales and related new MSR capitalization, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.

(2)Ratio of gain on Loans held for sale to Origination UPB. Note that the ratio differs from the day-one gain on sale margin upon lock and includes gains or losses on interest rate lock commitments.

(3)Defined as the UPB of loans funded in the period.

Gain on loans held for sale, net for the first quarter of 2022 decreased $17.2 million, or 57% as compared to the three months ended December 31, 2021 as loan production volume and margins declined for both the consumer direct and correspondent channels. Our consumer direct channel accounted for $12.6 million of the decline in Gain on loans held for sale, net, driven by a significant reduction of our pipeline, with $4.0 million fair value of lock commitments outstanding at March 31, 2022 compared with $16.1 million fair value for those outstanding at December 31, 2021. The total $3.4 billion, or 51% new production volume decrease is driven by rising interest rates at a rapid pace during the first quarter of 2022, significantly reducing opportunities for existing borrowers to refinance. The margin reduction in our Correspondent channel is mostly due to some hedging ineffectiveness caused by the significant volatility in the market. We prudently manage our volumes and margins, including embedded MSR pricing. As interest rates rapidly increased during the first quarter of 2022 and the range of pricing widened in different markets, we intentionally constrained our volume when valuations did not align with our expectations.

As compared to the three months ended March 31, 2021, Gain on loans held for sale, net for the three months ended March 31, 2022 decreased $24.8 million, or 66% due to the same reasons as described above, primarily due to a $21.4 million decrease in our consumer direct channel, with a 68% decline in margin, partially offset by an 18% increase in loan production attributed to this channel. Overall, our loan production volume for forward channels increased $146.5 million, or 5%, and the average gain on sale margin declined 68% from 118 basis points in the three months ended March 31, 2021 to 38 basis points in the three months ended March 31, 2022, mostly due to unfavorable market conditions for borrower refinancing due to rising interest rates during the first quarter of 2022.

Reverse Mortgage Revenue, Net

The following table provides information regarding Reverse mortgage revenue, net of the Originations segment that comprises fair value changes of the pipeline and unsecuritized reverse mortgage loans held for investment, at fair value, together with volume and margin:


	Three Months Ended						% Change		Three Months Ended March 31, 2021			% Change
	March 31,			December 31,
	2022			2021
Origination UPB (1)	$	547.0		$	497.1		10	%	$	263.1		108	%
Origination margin (2)	4.56		%	5.10		%	(10)		7.52		%	(39)



Reverse mortgage revenue, net (Originations) (3)	$	25.0		$	25.3		(1)	%	$	19.8		26	%

(1)Defined as the UPB of loans funded in the period.

(2)Ratio of origination gain and fees - see (3) below - to origination UPB. Note that the ratio includes gains or losses on interest rate lock commitments.

(3)Includes gain on new origination, and loan fees and other. Includes $11.1 million, $10.8 million and $5.9 million non-cash gain on securitization of newly originated loans for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Our reverse mortgage originations revenue remained mostly steady quarter over quarter. We reported $25.0 million Originations Reverse mortgage revenue, net for the three months ended March 31, 2022, a $0.4 million, or 1% decrease as compared to the three months ended December 31, 2021. As detailed in the above table, the decrease is driven by a lower average margin that was largely offset by a volume increase in our wholesale and correspondent channels. Our higher-margin reverse retail channel generated a net revenue decrease quarter over quarter due to the decline in volume. The decrease in margin during the three months ended March 31, 2022 is primarily attributable to unfavorable yield spread widening observed in the market during the first quarter of 2022.

As compared to the three months ended March 31, 2021, Reverse mortgage revenue, net for the three months ended March 31, 2022 increased $5.2 million, or 26%, The increase is primarily driven by an increase in volume in all channels, partially offset by lower margins in all channels. The significant increase in the volume in all reverse channels was largely offset by a lower average margin mostly due to unfavorable yield spread widening observed in the market during the first quarter of 2022.

Other Revenue, net

Other revenue for the three months ended March 31, 2022 decreased $6.8 million or 48% as compared to the three months ended December 31, 2021, due to a 51% lower loan origination volume, mostly in our forward correspondent channel.

As compared to the three months ended March 31, 2021, Other revenue for the three months ended March 31, 2022 declined $1.6 million, primarily due to a decline in ancillary fee income related to MSR acquisitions (as the economics are now reported within Servicing following the launch of MAV in the second quarter of 2021), partially offset by additional setup fees earned for loans boarded on our servicing platform driven by the increase in consumer direct origination volume.

MSR Valuation Adjustments, Net

MSR valuation adjustments, net includes gains of $1.1 million, $1.7 million and $8.5 million for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively, due to the revaluation gains on certain MSRs opportunistically purchased through the Agency Cash Window programs, and flow purchases. As an aggregator of MSRs, we may purchase MSRs from smaller originators with a purchase price at a discount to fair value and we recognize valuation adjustments for differences in exit markets in accordance with the accounting fair value guidance. We record such valuation adjustments as MSR valuation adjustments, net within the Originations segment since the segment’s business objective is the sourcing of new MSRs at targeted returns. We transfer the MSR from the Originations segment to the Servicing segment at fair value.

MSR valuation adjustments, net for the three months ended March 31, 2022 decreased $0.6 million as compared to the three months ended December 31, 2021. As compared to the three months ended March 31, 2021, MSR valuation adjustments, net for the three months ended March 31, 2022 decreased $7.4 million. Opportunities for fair value discount or margins were greater in the early period of the pandemic and have reduced as markets normalized.

Operating Expenses

Operating expenses for the three months ended March 31, 2022 decreased $4.7 million, or 9%, as compared to the three months ended December 31, 2021, primarily due to lower forward loan production volumes. Compensation and benefits decreased $1.2 million, or 4% mostly due to a $1.6 million decline in commissions on lower origination volumes and a $2.3

million decline in incentive compensation, partially offset by a $1.6 million increase in salary and benefits attributed to higher average headcount and a $1.0 million increase in severance expense. Originations average headcount increased 6% as compared to the three months ended December 31, 2021, driven by the reverse originations channels to accompany their growth. The decline in incentive compensation is mostly attributed to a $1.8 million decrease in the fair value of cash-settled share-based awards associated with the decrease in our common stock price during the quarter, and the incremental incentive compensation accrued in the fourth quarter of 2021. The net $3.4 million decrease in other operating expenses is primarily driven by a $1.8 million decrease in origination expenses driven by lower origination volumes and a $1.0 million decrease in Professional services largely due to outsourced surge resources utilized during the fourth quarter of 2021 to accommodate higher volumes in the reverse and forward correspondent channels.

While the Originations average headcount increased in the first quarter of 2022 as compared to the fourth quarter of 2021, the headcount of Forward Originations, mostly Consumer Direct, was reduced in March 2022 by approximately 15% and is expected to be further reduced in the second quarter of 2022 as part of our efforts to right size our resources to market opportunities.

As compared to the three months ended March 31, 2021, Operating expenses for the three months ended March 31, 2022 increased $8.5 million, or 23%. Compensation and benefits increased $6.6 million, or 30% with a $4.9 million increase in salary and benefits due to increased headcount, a $1.8 million increase in commissions driven by higher origination volumes and a $1.0 million increase in severance expense. Incentive compensation declined $0.8 million primarily due to a $1.2 million decline in the fair value of cash-settled share-based awards associated with the decrease in our common stock price during the quarter. Originations average headcount increased 53% as compared to the three months ended March 31, 2021, reflecting an increase in loan production levels and the integration of the TCB correspondent lending resources in the second half of 2021. The offshore-to-total average headcount ratio for Originations increased from 33% for the three months ended March 31, 2021 to 44% for the three months ended March 31, 2022. Other operating expenses increased $1.9 million primarily due to increased volume and Originations business expansion, including a $1.2 million increase in advertising expense mostly attributed to Reverse Originations. The increase in Origination expense and Technology and communications is mostly offset by a decrease in Professional services, explained by outsourced surge resources utilized during the first quarter of 2021 to support higher production volumes.

Certain other operating expenses are variable, and as a result, as origination volume increased or decreased so did the related expenses. Examples include credit reports, appraisals, settlement fees, and tax service fees recorded in Origination expenses or certain outsourced services including surge resources recorded in Professional services.

Other Income (Expense)

Interest income consists primarily of interest earned on newly-originated and purchased loans prior to sale to investors. Interest expense is incurred to finance the mortgage loans. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines. The decrease in interest income and interest expense during the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 is primarily the result of the decrease in the average held for sale loan and warehouse debt balances due to lower loan production volumes. As compared to the three months ended March 31, 2021, interest income and interest expense increased primarily as a result of the increase in the average held for sale loan and warehouse debt balances due to increased loan production volumes.


CORPORATE ITEMS AND OTHER

Corporate Items and Other includes revenues and expenses of corporate support services, our reinsurance business CRL, inactive entities, and our other business activities that are currently individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, gain or loss on repurchases of debt, interest expense on unallocated corporate debt and foreign currency exchange gains or losses. Interest expense on corporate debt is allocated to the Servicing segment and the Originations segment based on relative financing requirements. Effective in the first quarter of 2022, we no longer allocate the OFC Senior Secured Notes and related interest expense to the Servicing and Originations segments. Accordingly, the financing cost of the Servicing and Originations segments reflects and is consistent with the financing structure of the licensed entity PMC that carries out these businesses and does not depend on the financing structure strategy of its parent, as a holding company. Interest expense allocated to the Servicing and Originations segments for prior periods has been recast to conform to the current period presentation. The interest expense allocation adjustment for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021 is $10.2 million, $9.5 million and $1.5 million, respectively.

Corporate support services include finance, facilities, human resources, internal audit, legal, risk and compliance and technology functions. Certain expenses incurred by corporate support services are allocated to the Servicing and Originations segments using various methodologies intended to approximate the utilization of such services. Various measurements of

utilization of corporate support services are maintained, primarily time studies, personnel volumes and service consumption levels. Support service costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, and other costs related to operating as a public company.

CRL, our wholly-owned captive reinsurance subsidiary, provides re-insurance related to coverage on REO properties owned or serviced by us. CRL assumes a quota share of REO insurance coverage written by a third-party insurer under a blanket policy issued to PMC. The underlying REO policy provides coverage for direct physical loss on commercial and residential properties, subject to certain limitations. Under the terms of the reinsurance agreement, CRL assumes a 60% quota share of premiums and all related losses incurred by the third-party insurer, effective March 2021, with a 50% quota through February 2021. The reinsurance agreement expires December 31, 2023, but may be terminated by either party at any time with six months advance written notice. The agreement will automatically renew for additional one-year terms unless either party provides 60 days advance written notice prior to renewal.

The following table presents selected results of operations of Corporate Items and Other. The amounts presented are before the elimination of balances and transactions with our other segments:


	Three Months Ended				% Change		Three Months Ended March 31, 2021		% Change
	March 31,		December 31,
	2022		2021
Revenue
Premiums (CRL)	$	1.7	$	1.8	(5)	%	$	1.2	35	%
Other revenue	0.1		0.1		79		0.1		133
Total revenue	1.8		1.8		(2)		1.3		40

Operating expenses
Compensation and benefits	10.5		25.7		(59)		21.3		(51)
Professional services	3.6		10.7		(66)		7.0		(49)
Technology and communications	5.9		5.0		18		5.7		2
Occupancy and equipment	0.6		0.9		(31)		0.9		(28)
Servicing and origination	(0.2)		—		n/m		0.2		(167)
Other expenses	2.5		2.5		(1)		1.2		104
Total operating expenses before corporate overhead allocations	22.9		44.8		(49)		36.4		(37)
Corporate overhead allocations
Servicing segment	(11.1)		(11.2)		(1)		(12.2)		(9)
Originations segment	(5.3)		(5.2)		1		(5.0)		4

Total operating expenses	6.5		28.3		(77)		19.1		(66)

Other income (expense), net
Interest income	0.1		0.1		(43)		0.1		(30)
Interest expense	(10.5)		(10.9)		(4)		(6.1)		73
Loss on extinguishment of debt	—		—		n/m		(15.5)		(100)


Other, net	0.5		0.4		23		(0.2)		(405)
Total other income (expense), net	(9.9)		(10.3)		(4)		(21.6)		(54)

Income (loss) before income taxes	$	(14.6)	$	(36.8)	(60)	%	$	(39.5)	(63)	%
n/m: not meaningful

Compensation and Benefits

Compensation and benefits expense for the three months ended March 31, 2022 declined $15.1 million, or 59%, as compared to the three months ended December 31, 2021 primarily as a result of a $14.9 million decrease in incentive compensation. The decrease in incentive compensation is mostly due to a $12.5 million decrease in the fair value of cash-settled share-based awards associated with the decrease in our common stock price during the quarter. The decrease in incentive

compensation is also due to annual incentive award adjustments recorded in the three months ended December 31, 2021. The average Corporate headcount declined 1% and the mix between onshore and offshore was mostly unchanged.

As compared to the three months ended March 31, 2021, Compensation and benefits expense for the three months ended March 31, 2022 decreased $10.8 million, or 51%, primarily as a result of an $8.7 million decrease in incentive compensation, and a $1.4 million decrease in salaries and benefit expense. The decline in incentive compensation is primarily due to a $7.4 million decrease in the fair value of cash-settled share-based awards associated with the decrease in our common stock price during the quarter. The decline in salaries and benefit expense is driven by a 3% decline in average corporate headcount.

Professional Services

Professional services expense for the three months ended March 31, 2022 declined $7.1 million, or 66%, as compared to the three months ended December 31, 2021, primarily due to a $5.6 million decrease in legal expenses and a $1.5 million decrease in other professional fees. The net decrease in legal expenses is largely due to the $4.8 million recovery in the first quarter of 2022 of a litigation matter and a reduction in expenses related to other legal matters. The decrease in other professional fees is primarily due to a higher utilization of professional services in the fourth quarter of 2021, including consulting services related to corporate strategy and business initiatives.

As compared to the three months ended March 31, 2021, Professional services expense for the three months ended March 31, 2022 declined $3.4 million, or 49%, primarily due to a $4.0 million decrease in legal expenses due to the $4.8 million recovery in the first quarter of 2022 of a litigation matter, partially offset by an increase in expenses related to other legal matters.

Other Income (Expense)

Interest expense remained flat for the three months ended March 31, 2022 as compared to three months ended December 31, 2021. The debt balance of the Corporate segment is mostly the OFC Senior Secured Notes issued by Ocwen (parent company) as the PMC Senior Secured Notes are largely allocated to the Originations and Servicing segments.

As compared to the three months ended March 31, 2021, interest expense for the three months ended March 31, 2022 increased $4.5 million, or 73%. The increase is primarily driven by a higher cost of corporate debt that is mostly due to the OFC senior secured notes issued on March 4, 2021 and May 3, 2021. The notes were issued to Oaktree together with warrants that resulted in an additional discount, the accretion of which is reported as interest expense.

On March 4, 2021, we recognized a loss on debt extinguishment of $15.5 million resulting from our early repayment of the SSTL due May 2022 and our early redemption of our 6.375% PHH senior unsecured notes due August 2021 and our 8.375% PMC senior secured notes due November 2022. The loss on debt extinguishment includes the write-off of unamortized debt issuance costs and discount, as well as contractual prepayment premiums.


LIQUIDITY AND CAPITAL RESOURCES

Overview

In the normal course of business, we are actively engaged with our lenders and as a result, renew, replace or extend our debt agreements to the extent necessary to finance our operations. See Note 13 – Borrowings to the Unaudited Consolidated Financial Statements for additional information. We actively monitor and, during the three months ended March 31, 2022, we have adjusted our borrowing capacity on our various collateralized debt agreements to align with our financing needs and to optimize our financing costs.

A summary of borrowing capacity under our advance facilities, mortgage warehouse facilities and MSR financing facilities is as follows at the dates indicated:


	March 31, 2022						December 31, 2021
	Total Borrowing Capacity (1)		Available Borrowing Capacity - Committed (1)		Available Borrowing Capacity - Uncommitted (1)		Total Borrowing Capacity (1)		Available Borrowing Capacity - Committed (1)		Available Borrowing Capacity - Uncommitted (1)
Advance facilities	$	565.0	$	67.7	$	—	$	595.0	$	82.7	$	—
Mortgage loan warehouse facilities	1,860.3		174.5		726.7		2,119.3		240.3		794.0
MSR financing facilities	810.0		75.6		45.1		785.0		40.4		18.3
Total	$	3,235.3	$	317.8	$	771.8	$	3,499.3	$	363.4	$	812.3
Total Capacity increase (decrease)	$	(264.0)	$	(45.6)	$	(40.5)	(8)%		(13)%		(5)%
Advance facilities	$	(30.0)	$	(15.0)	$	—	(5)%		(18)%		—%
Mortgage loan warehouse facilities	$	(259.0)	$	(65.8)	$	(67.3)	(12)%		(27)%		(8)%
MSR financing facilities	$	25.0	$	35.2	$	26.8	3%		87%		146%

(1)Total Borrowing Capacity represents the maximum amount which can be borrowed, subject to eligible collateral. Available Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings.

Our total borrowing capacity decreased by approximately $264.0 million (or 8%) in the three months ended March 31, 2022, mostly driven by a $259.0 million (12%) decrease in our mortgage loan warehouse capacity due to lower loan production. Offsetting this decrease, we increased the capacity of our MSR financing facilities by $25.0 million to fund our MSR portfolio. At March 31, 2022, $1.6 million of the available borrowing capacity under our advance financing facilities could be funded based on the amount of eligible collateral that had been pledged to such facilities. Also, none of our uncommitted borrowing capacity was available to fund advances at March 31, 2022 under our Ginnie Mae MSR financing facility based on the amount of eligible collateral.

We may utilize committed borrowing capacity under our mortgage warehouse facilities and MSR financing facilities to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding. At March 31, 2022, we had $5.4 million committed borrowing capacity under our mortgage loan warehouse facilities and $40.4 million committed borrowing capacity under our MSR financing facilities, based on the amount of eligible collateral. Uncommitted amounts can be advanced at the discretion of the lender, and there can be no assurance that any uncommitted amounts will be available to us at any particular time.

At March 31, 2022, our unrestricted cash position was $268.7 million compared to $192.8 million at December 31, 2021. We typically invest cash in excess of our immediate operating needs in deposit accounts and other liquid assets.

We strive to optimize our daily cash position to reduce financing costs while closely monitoring our liquidity needs and ongoing funding requirements. We regularly monitor and project cash flows over various time horizons as a way to anticipate and mitigate liquidity risk.

In assessing our liquidity outlook, our primary focus is on available cash on hand, unused available funding and the following forecast measures:

•Financial projections for ongoing net income, excluding the impact of non-cash items, and working capital needs including loan repurchases;

•Requirements for amortizing and maturing liabilities;

•The projected change in advances compared to the projected borrowing capacity to fund such advances under our facilities, including capacity for monthly peak needs;

•Projected funding requirements for acquisitions of MSRs and other investment opportunities;

•Funding capacity for whole loans and tail draws under our reverse mortgage commitments subject to warehouse eligibility requirements;

•Potential payments or recoveries related to legal and regulatory matters, insurance, taxes and others; and

•Margining requirements associated with our borrowing facilities and hedging program.

Use of Funds

Our primary near-term uses of funds in the normal course include:

•Payment of operating costs and corporate expenses;

•Payments for advances in excess of collections;

•Investing in our servicing and originations businesses, including MSRs, other asset acquisitions and MAV Canopy equity contributions;

•Originated and repurchased loans, including scheduled and unscheduled equity draws on reverse mortgage loans;

•Payment of margin calls under our MSR financing facilities and derivative instruments;

•Repayments of borrowings, including under our MSR financing, advance financing and warehouse facilities, and payment of interest expense; and

•Net negative working capital and other general corporate cash outflows.

We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.7 billion at March 31, 2022. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. During the three months ended March 31, 2022, we funded $56.4 million out of the $1.5 billion borrowing capacity available as of December 31, 2021. We also had short-term commitments to lend $569.8 million and $47.8 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at March 31, 2022. As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount (MCA repurchases), or when they become inactive (the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments). Our subservicing clients bear the financial obligation and risks associated with purchasing loans out of securitization pools within the portfolio we subservice. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, referred to as warehouse lines.

Regarding the current maturities of our borrowings, as of March 31, 2022, we have approximately $1.9 billion of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months. This amount is comprised of $959.1 million of borrowings under forward and reverse mortgage warehouse facilities, $497.3 million of notes under advance financing facilities that will enter their respective amortization periods, $412.2 million outstanding under Agency and Ginnie Mae MSR financing facilities maturing in the next 12 months and $19.4 million of scheduled principal amortization on the PLS Notes secured by PLS MSRs.

We are generally subject to daily margining requirements under the terms of our MSR financing facilities and daily cash calls for our TBAs, interest rate swap futures or other derivatives. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under MSR financing facilities. Similarly, declines in fair value of our derivative instruments require that we provide additional collateral to the clearing counterparties. Refer to the sensitivity analysis in Item 3, Quantitative and qualitative disclosures about market risk.

Our medium- and long-term requirements for cash include:

•Payment of interest and principal repayment of our corporate debt that matures in 2026 and 2027;

•Any payments associated with the confirmation of loss contingencies; and

•Any other payments required under contractual obligations discussed above that extend beyond one year, e.g., lease payments.

We are focused on ensuring that we have sufficient liquidity sources to continue to operate through the pandemic as well as after. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost. See “Sources of Funds” below.

Sources of Funds

Our primary sources of funds for near-term liquidity in normal course include:

•Collections of servicing and subservicing fees and ancillary revenues;

•Collections of advances in excess of new advances;

•Proceeds from match funded advance financing facilities;

•Proceeds from other borrowings, including warehouse facilities and MSR financing facilities;

•Proceeds from sales and securitizations of originated loans and repurchased loans; and

•Net positive working capital from changes in other assets and liabilities.

Servicing advances are an important component of our business and represent amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. Our use of advance financing facilities is integral to our cash and liquidity management strategy. Revolving variable funding notes issued by our advance financing facilities to financial institutions typically have a revolving period of 12 months. Term notes are generally

issued to institutional investors with one-, two- or three-year revolving periods. Additionally, certain of our financing and subservicing agreements permit us to retain advance collections for a period ranging from one to two business days before remittance, thus providing a source of short-term liquidity.

We use mortgage loan repurchase and participation facilities (commonly called warehouse lines) to fund newly-originated loans on a short-term basis until they are sold to secondary market investors, including GSEs or other third-party investors, and to fund repurchases of certain Ginnie Mae forward loans, HECM loans, second-lien loans and other types of loans. Warehouse facilities are structured as repurchase or participation agreements under which ownership of the loans is temporarily transferred to the lender. These facilities contain eligibility criteria that include aging and concentration limits by loan type among other provisions. Currently, our master repurchase and participation agreements generally have maximum terms of 364 days. The funds are typically repaid using the proceeds from the sale of the loans to the secondary market investors, usually within 30 days.

We also rely on the secondary mortgage market as a source of consistent liquidity to support our lending operations. Substantially all of the mortgage loans that we originate or purchase are sold or securitized in the secondary mortgage market in the form of residential mortgage backed securities guaranteed by Fannie Mae or Freddie Mac and, in the case of mortgage backed securities guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA, VA or United States Department of Agriculture (USDA).

We regularly evaluate financing structure options that we believe will most effectively provide the necessary capacity to support our investment plans, address upcoming debt maturities and accommodate our business needs. We continuously evaluate the allocation of our capital to MSR investments, the related returns, funding and liquidity requirements. While our investment in MAV Canopy exposes us to additional capital contributions, the relationship may provide PMC with an additional means to finance MSRs and maintain liquidity while maintaining servicing volume. With the launch of MAV and our relationships with other clients, additional opportunities to rebalance our servicing and subservicing portfolio mix are available to us and may result in the sale of MSRs while we would perform subservicing for the sold portfolio.

Covenants

Our debt agreements contain various qualitative and quantitative covenants including financial covenants, covenants to operate in material compliance with applicable laws and regulations, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional debt, paying dividends or making distributions on or purchasing equity interests of Ocwen and its subsidiaries, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries, creating liens on assets to secure debt, and entering into transactions with affiliates. These covenants may limit the manner in which we conduct our business and may limit our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and litigation and changes of control. See Note 13 – Borrowings to the Unaudited Consolidated Financial Statements for additional information regarding our covenants. The most restrictive liquidity requirement under our debt agreements is for a minimum of $125.0 million in consolidated liquidity, as defined, under certain of our advance match funded debt and MSR financing facilities agreements. At March 31, 2022, we held unrestricted cash in excess of this minimum amount.

In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations, and other legal remedies, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. We believe that we are in compliance with the covenants in our debt agreements as of the date this Quarterly Report on Form 10-Q is filed with the SEC.

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligations. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. The following table summarizes our current

ratings and outlook by the respective nationally recognized rating agencies. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.

Rating Agency

Long-term Corporate Rating

Review Status / Outlook

Date of last action

Moody’s

Caa1

Stable

February 24, 2021

S&P

B-

Stable

February 24, 2021

On February 24, 2021, concurrent with the launch of the $400.0 million PMC Senior Secured Notes offering, both Moody’s and S&P reaffirmed the corporate ratings at Caa1 and B-, respectively. In addition, both agencies revised the outlook of the corporate ratings to Stable from Negative. This change in outlook was driven by the elimination of the short debt maturity runway and refinancing risk, which was listed as an area of concern by both Moody’s and S&P. On January 24, 2022, S&P affirmed the corporate rating at B-.

On January 24, 2022, S&P raised the assigned rating to the PMC Senior Secured Notes from ‘B-’ to ‘B’ and maintained a stable outlook citing improved profitability and increase in assets. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.

Cash Flows

Our operating cash flow is primarily impacted by operating results, including Originations gains on loan sales, changes in our servicing advance balances, the level of mortgage loan production, the timing of sales and securitizations of mortgage loans, and the margin calls required under our MSR financing facilities or derivative instruments. We classify purchases of MSRs through flow purchase agreements, Agency Cash Window and bulk acquisitions as investing activity. MSR investments represent a key indicator of our ability to generate future income in our Servicing business, together with originated MSRs. We classify changes in HECM loans held for investment as investing activity and changes in the related HMBS borrowings as financing activity.

Our NRZ agreements represent an important component of our liquidity and our liquidity management, and have a significant impact on consolidated statements of cash flows. Excluding the impact of changes to the secured financings attributed to changes in fair value, changes in the balance of these secured financings are reflected in cash flows from operating activities despite having no impact on our consolidated cash balance.

Our cash flows are summarized as follows:


$ in millions	For the Three Months Ended March 31,
	2022		2021
Net cash provided by (used in) operating activities	$	186	$	(130)
Net cash provided by (used in) investing activities	(34)		(53)
Net cash provided by (used in) financing activities	(71)		162
Net increase (decrease) in cash, cash equivalents and restricted cash	$	82	$	(21)
Cash, cash equivalents and restricted cash at end of period	$	345	$	336

Cash flows for the three months ended March 31, 2022

Our operating activities provided $186.1 million of cash with net cash received on loans held for sale of $128.3 million for the three months ended March 31, 2022 due to lower forward loan production volumes. In addition, net collections of servicing advances were $27.3 million, mostly P&I advances.

Our investing activities used $33.7 million of cash. The primary uses of cash in our investing activities include $101.3 million net cash outflows in connection with our HECM reverse mortgages and $64.3 million to purchase MSRs. Offsetting cash inflows include $134.3 million proceeds from the sale of MSRs to an unrelated third party. Capital distributions of $16.9 million received from our equity method investee MAV Canopy were offset by $16.5 million of capital contributions.

Our financing activities used $70.9 million of cash. Cash outflows include $132.8 million net repayments of borrowings under our mortgage warehouse and MSR financing facilities due to the decline in loans held for sale, $15.0 million of net repayments on advance match funded liabilities due to the decline in servicing advances, and $28.3 million of net payments on the financing liabilities related to MSRs transferred due to runoff. Cash inflows include $583.9 million received in connection

with our reverse mortgage securitizations, which are accounted for as secured financings, partially offset by repayments on the related financing liability of $517.4 million, and $39.8 million of proceeds from sale of MSRs accounted for as a financing in connection with sales of MSRs to MAV.

Cash flows for the three months ended March 31, 2021

Our operating activities used $130.3 million of cash largely due to the growth of our Originations new production with net cash paid on loans held for sale of $154.5 million for the three months ended March 31, 2021, partially offset by $38.7 million of net collections of servicing advances, mostly P&I advances.

Our investing activities used $52.8 million of cash. The primary uses of cash in our investing activities include $41.6 million to purchase MSRs and net cash outflows in connection with our HECM reverse mortgages of $11.6 million.

Our financing activities provided $162.3 million of cash. Cash inflows include $572.9 million from the issuance of the PMC Senior Secured Notes and the OFC Senior Secured Notes and warrants, $287.8 million received in connection with our reverse mortgage securitizations, offset by repayments on the related financing liability of $311.6 million, and a $177.2 million net increase in borrowings under our mortgage warehouse and MSR financing facilities. Cash outflows include $319.2 million to repay our 6.375% senior unsecured notes and 8.375% senior secured notes, $188.7 million repayment of the SSTL, $30.9 million of net repayments on advance match funded liabilities and $17.6 million of net payments on the financing liabilities related to MSRs pledged. In addition, we paid debt issuance costs of $6.8 million in connection with the issuance of the PMC Senior Secured Notes and OFC Senior Secured Notes.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the date of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. We have processes in place to monitor these judgments and assumptions, and management is required to review critical accounting policies and estimates with the Audit Committee of the Board of Directors. The following is a summary of certain accounting policies and estimates involving significant judgments. Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 in Note 1 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.” There have not been any material changes to our critical accounting policies and estimates as disclosed in the Annual Report on Form 10-K.

Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain instruments in our statement of operations and to determine fair value disclosures. As of March 31, 2022, 86% of our assets and 68% of our liabilities were reported at fair value, with fair value changes reported in our statement of operations. Substantially all our assets and liabilities at fair value were classified as Level 3 instruments due to unobservable inputs. Refer to Note 3 – Fair Value to the Unaudited Consolidated Financial Statements and Note 3 — Fair Value to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for the fair value hierarchy, descriptions of valuation methodologies used to measure significant assets and liabilities at fair value and details of the valuation models, key inputs to those models, significant assumptions utilized, and sensitivity analyses. We follow the fair value hierarchy to prioritize the inputs utilized to measure fair value and classify instruments as Level 3 when the valuation technique requires significant unobservable inputs or assumptions. We review and modify, as necessary, our fair value hierarchy classifications on a quarterly basis. The determination of the fair value of these Level 3 financial assets and liabilities and MSRs requires significant management judgment and estimation. See Part I., Item 3. Quantitative and Qualitative Disclosures about Market Risk for a sensitivity analysis reflecting the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale carried at fair value as well as any related derivatives at March 31, 2022, given hypothetical instantaneous parallel shifts in the yield curve.

Valuation of Reverse Mortgage Loans Held for Investment

Reverse mortgage loans are insured by the FHA and transferred into Ginnie Mae guaranteed securities (or HMBS) that we sell into the secondary market. Loan transfers in these Ginnie Mae securitizations do not qualify for sale accounting and are recorded as secured borrowings. We record both loans held for investment and the corresponding HMBS borrowings at fair value. Our net exposure to reverse mortgages and the HMBS-related borrowings is limited to the residual value we retain, including future draw commitments. Changes in the fair value of the loans held for investment are largely offset by changes in the value of the related secured financing. As of March 31, 2022, we reported $7.2 billion securitized loans held for investment at fair value and $7.1 billion HMBS-related borrowings at fair value, with a residual, net asset value of $83.2 million. During

the three months ended March 31, 2022, we recorded a net $11.9 million loss on change in fair value of securitized loans held for investment and HMBS-related borrowings reported in Reverse mortgage revenue, net in our Servicing segment.

The fair value of both reverse mortgage loans held for investment and corresponding HMBS-related borrowings is based primarily on discounted cash flow methodologies. Inputs to the discounted cash flows of these assets include future draws and tail spread gains, conditional prepayment rate (including voluntary and involuntary prepayments) and discount rate. The determination of fair value requires management judgment due to the significant unobservable assumptions, including conditional prepayment rate and discount rate.

We engage third-party valuation experts to support our valuation and provide observations and assumptions related to market activities. We evaluate the reasonableness of our fair value estimate and assumptions using historical experience, or cash flow backtesting, adjusted for prevailing market conditions and benchmarks with third-party expert valuations. We believe that our back-testing and benchmarking procedures provide reasonable assurance that the fair value used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.

Valuation of MSRs and Pledged MSR Liabilities

We originate MSRs from our lending activities and acquire MSRs through flow purchase agreements, Agency Cash Window programs, bulk purchases, asset acquisitions or business combinations. We account for MSRs and pledged MSR liabilities at fair value. As of March 31, 2022, we reported a $2.3 billion fair value of MSRs. During the three months ended March 31, 2022, we recorded a $203.5 million fair value gain on the revaluation of our MSRs and $55.5 million fair value loss on the revaluation of our pledged MSR liabilities.

We determine the fair value of MSRs and pledged MSR liabilities primarily using discounted cash flow methodologies. The significant estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees, and cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments. The determination of the fair value of MSRs and pledged MSR liabilities requires management judgment relating to the significant unobservable assumptions that underlie the valuation, including prepayment speed, delinquency rates, cost to service and discount rate. Our judgement is informed by the transactions we observe in the market, by our actual portfolio performance and by the advice and information we obtain from our valuation experts, amongst other factors.

To assist in the determination of fair value, we engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and a prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, incorporating available industry survey results, and including risk premiums and liquidity adjustments. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts, and we perform additional verification and analytical procedures. We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions and benchmarks with third-party expert valuation and market participant surveys. We believe that our procedures provide reasonable assurance that the fair value used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.

Allowance for Losses on Servicing Advances and Receivables

Advances are generally fully reimbursed under the terms of servicing agreements. However, servicing advances may include claimable (with investors) but non-recoverable expenses, for example due to servicer error, such as lack of reasonable documentation as to the type and amount of advances. We record an allowance for losses on servicing advances to the extent we believe that a portion of advances are uncollectible under the provisions of each servicing contract taking into consideration, among other factors, our historical collection rates, probability of default, cure or modification, length of delinquency and the amount of the advance. We continually assess collectability using proprietary cash flow projection models that incorporate a number of different factors, depending on the characteristics of the mortgage loan or pool, including, for example, the probable loan liquidation path, estimated time to a foreclosure sale, estimated costs of foreclosure action, estimated future property tax payments and the estimated value of the underlying property net of estimated carrying costs, commissions and closing costs. At March 31, 2022, the allowance for losses on servicing advances was $6.9 million, which represented 0.9% of total servicing advances. During the three months ended March 31, 2022, we recorded a $1.8 million provision expense for losses on servicing advances.

We record an allowance for losses on receivables in our Servicing business, including related to defaulted FHA or VA insured loans repurchased from Ginnie Mae guaranteed securitizations. This allowance is based upon continuing assessments of collectability, historical loss experience, current conditions and reasonable and supportable forecasts. At March 31, 2022, the

allowance for losses on receivables related to government-insured claims was $40.8 million, which represents 28% of total government-insured claims receivables. During the three months ended March 31, 2022, we recorded a $2.2 million provision expense on receivables related to government-insured claims.

Determining an allowance for losses involves management judgment and assumptions that, given similar information at any given point, may result in a different but reasonable estimate.

Indemnification Obligations

We have exposure to representation, warranty and indemnification obligations because of our lending, sales and securitization activities, our acquisitions to the extent we assume one or more of these obligations, and in connection with our servicing practices. We initially recognize these obligations at fair value. Thereafter, the estimation of the liability considers probable future obligations based on industry data of loans of similar type segregated by year of origination, to the extent applicable, and estimated loss severity based on current loss rates for similar loans, our historical rescission rates and the current pipeline of unresolved demands. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions. We monitor the adequacy of the overall liability and make adjustments, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with our counterparties. As of March 31, 2022, we have recorded a liability for representation and warranty obligations, and similar indemnification obligations of $44.4 million. During the three months ended March 31, 2022, we recorded a $3.6 million provision expense for indemnification. See Note 21 – Contingencies to the Unaudited Consolidated Financial Statements for additional information.

Litigation

In the ordinary course of business, we are a defendant in, or a party or potential party to, many threatened and pending litigation matters. We monitor our litigation matters, including advice from external legal counsel, and regularly perform assessments of these matters for potential loss accrual and disclosure. We establish liabilities for settlements, judgments on appeal and filed and/or threatened claims for which we believe it is probable that a loss has been or will be incurred and the amount can be reasonably estimated based on current information regarding these matters. Where we determine that a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. Management’s assessment involves the use of estimates, assumptions, and judgments, including progress of the matter, prior experience, available defenses, and the advice of legal counsel and other experts. Accruals are adjusted as more information becomes available or when an event occurs requiring a change. During the three months ended March 31, 2022, we recorded a $2.7 million net release of our provision for loss contingencies due to the $4.8 million recovery in the first quarter of 2022 of a litigation matter. Our total accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $46.0 million as of March 31, 2022. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded as of March 31, 2022.

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates in each jurisdiction that applies to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses.

For the three-year periods ended December 31, 2021 and 2020, the U.S. and USVI filing jurisdictions were in material cumulative loss positions. We recognize that cumulative losses in recent years is an objective form of negative evidence in assessing the need for a valuation allowance and that such negative evidence is difficult to overcome. Other factors considered in these evaluations are estimates of future taxable income, future reversals of temporary differences, tax character and the impact of tax planning strategies that may be implemented, if warranted.

As a result of these evaluations, we recognized a full valuation allowance of $175.4 million and $182.7 million on our U.S. deferred tax assets at December 31, 2021 and 2020, respectively, and a full valuation allowance of $0.4 million on our USVI

deferred tax assets at both December 31, 2021 and 2020. The U.S. and USVI jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence. We intend to continue maintaining a full valuation allowance on our deferred tax assets in both the U.S. and USVI until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the profitability that we achieve.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. In addition, tax credit carryforwards may be subject to annual limitations under Internal Revenue Code Section 383 (Section 383). We periodically evaluate our NOL and tax credit carryforwards and whether certain changes in ownership have occurred as measured under Section 382 that would limit our ability to utilize a portion of our NOL and tax credit carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the use of these NOL and tax credit carryforwards under Sections 382 and 383 (or comparable provisions of foreign or state law).

Ocwen and PHH have both experienced historical ownership changes that have caused the use of certain tax attributes to be limited and have resulted in the write-off of certain of these attributes based on our inability to use them in the carryforward periods defined under the tax laws. Ocwen continues to monitor the ownership in its stock to evaluate whether any additional ownership changes have occurred that would further limit its ability to utilize certain tax attributes. As such, our analysis regarding the amount of tax attributes that may be available to offset taxable income in the future without restrictions imposed by Section 382 may continue to evolve.


RECENT ACCOUNTING DEVELOPMENTS

See Note 1 - Organization and Basis of Presentation to the Unaudited Consolidated Financial Statements for information related to recent accounting standards updates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in millions unless otherwise indicated)

Interest Rates

Our principal market risk exposure is the impact of interest rate changes on our mortgage-related assets and commitments, including MSRs, loans held for sale, loans held for investment, IRLCs and other derivative instruments. In addition, changes in interest rates could materially and adversely affect the amount of escrow and float income, the volume of mortgage loan originations or result in MSR fair value changes. We also have exposure to the effects of changes in interest rates on our floating-rate borrowings, including MSR and advance financing facilities.

Our management-level Market Risk Committee establishes and maintains policies that govern our risk appetite and associated hedging programs, including such factors as market volatility, duration and interest rate sensitivity measures, limits, targeted hedge ratios, the hedge instruments that we are permitted to use in our hedging activities and the counterparties with whom we are permitted to enter into hedging transactions and our liquidity risk profile. See Note 15 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information regarding our use of derivatives.

Our market risk exposure may also be affected by the replacement of LIBOR, which is expected to be fully phased out and completely replaced by June 30, 2023. The LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021 and that beginning January 1, 2022, renewals of existing contracts should provide for the replacement of U.S. dollar LIBOR with an alternative reference rate. Many of our debt facilities incorporate LIBOR. These facilities either matured prior to the end of 2021 or have terms in place that provide for an alternative to LIBOR upon its phase-out. As we renew or replace these debt facilities, we are working with our counterparties to incorporate alternative benchmarks.

MSR Hedging Strategy

Under the MSR hedging strategy at December 31, 2021, the interest-rate sensitive MSR portfolio exposure is defined as follows:

•Agency MSR portfolio,

•expected Agency MSR bulk transactions subject to letters of intent (LOI),

•less the Agency MSRs subject to our sale agreements with NRZ and MAV (See Note 8 — MSR Transfers Not Qualifying for Sale Accounting),

•less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings (Reverse).

Our MSR policy’s objective is to provide partial hedge coverage of interest-rate sensitive MSR portfolio exposure, considering market and liquidity conditions. The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) at the time of measurement, is subject to lower and upper thresholds, as modeled, of 40% and 60%, respectively in order to preserve liquidity and optimize asset returns. Accordingly, the changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate changes. We periodically evaluate the 40-60% coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, and liquidity impacts of both the hedge and asset profile under shock scenarios. As the market dictates, management may choose to maintain hedge coverage ratio levels at or beyond the above thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns. In addition, while DV01 measures may remain within the range of our hedging strategy’s objective, actual changes in fair value of the derivatives and MSR portfolio may not offset to the same extent, due to non-parallel changes in the interest rate curve and the basis risk inherent in the MSR profile and hedging instruments, among other factors. We continuously evaluate the use of hedging instruments to strive to enhance the effectiveness of our interest rate hedging strategy.

The following table illustrates the interest rate sensitivity of our MSR portfolio exposure and associated hedges at March 31, 2022. Hypothetical change in values of the MSR and hedges are presented under a set instantaneous +/- 25 basis point parallel move in rates. Refer to the description below under Sensitivity Analysis for more details. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear. The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only.


	Fair value at March 31, 2022		Hypothetical change in fair value due to 25 bps rate decrease (1)			Hypothetical change in fair value due to 25 bps rate increase (1)
Agency MSRs - interest rate sensitive (excluding NRZ and MAV)	$	1,435.2	$	(38.9)		$	34.6



Asset value of securitized HECM loans, net of HMBS-related borrowing	83.2		4.1			(4.1)
MSR hedging derivative instruments	$	(9.4)	8.2			(5.1)
Total hedge position			$	12.3		$	(9.2)
Hypothetical hedge coverage ratio (2)			32		%	27		%

Hypothetical residual exposure to changes in interest rates			$	(26.6)		$	25.4

(1)The baseline for the hypothetical change in fair value is based on a 10-year Treasury Rate of 2.32% at March 31, 2022.

(2)The hypothetical hedge coverage ratio above is calculated as the change in fair value of the total hedge position divided by the change in value of the Agency MSR position.

Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate swap futures and interest rate options. These derivative instruments are not designated as accounting hedges. TBAs, or To-Be-Announced securities are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time-to-time, we enter into exchange-traded options contracts with purchased put options financed by written call options. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to optimize the use of third party derivatives. Such inter-segment derivatives are eliminated in our consolidated financial statements.

The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value

changes of the instruments. Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.

Loans Held for Investment and HMBS-related Borrowings

The fair value of our HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, with lower interest rates extending the timeline to liquidation.

The fair value of our HECM loan portfolio net of the fair value of the HMBS-related borrowings comprise the fair value of reverse mortgage loans and tails that are unsecuritized at the balance sheet date (reverse pipeline) and the fair value of securitized HECM loans net of the corresponding HMBS-related borrowings that represent the reverse mortgage economic MSR (HMSR) for risk management purposes. The HMSR acts as a partial hedge for our forward MSR value sensitivity. This HMSR exposure is used as an offset to our forward MSR exposure and managed as part of our MSR hedging strategy described above.

Pipeline Hedging Strategy - Loans Held for Sale and IRLCs

In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 90 days, with the majority of our commitments to borrowers for 60 days and our commitments to correspondent sellers for 7 days. Loans held for sale are generally funded and sold within 5 to 20 days. This interest rate exposure was not individually hedged until May 2021, but rather used as an offset to our MSR exposure and managed as part of our MSR macro-hedging strategy described above. Effective May 2021, we implemented a new pipeline hedging strategy, whereby the interest rate exposure of loans held for sale and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The pipeline hedging strategy’s objective is to provide hedge coverage of locks and loans within certain tolerance levels. The net daily market risk position of net pull-though adjusted locks and loans held for sale, less the offsetting hedges of the forward and reverse pipelines, is monitored daily and its daily limit is the greater of +/- 15% or +/- $15 million. During the fourth quarter 2021, the daily limit was revised to +/-5.0% or +/- $5.0 million. We report changes in fair value of these derivative instruments in gain on loans held for sale in our consolidated statements of operations, within the Originations segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to optimize the use of third party derivatives. Such inter-segment derivatives are eliminated in our consolidated financial statements. Reverse pipeline is hedged under the same principles as described below, for unsecuritized loans held for investment.

During the first quarter of 2022, management started hedging Ginnie Mae EBO loans purchased out of securitizations for modification and reperformance with TBAs to manage the market risk (price impact) due to increasing interest rates while these loans await redelivery.

Advance Match Funded Liabilities

We monitor the effect of increases in interest rates on the interest paid on our variable-rate advance financing debt. Earnings on cash and float balances are a partial offset to our exposure to changes in interest expense. We purchase interest rate caps as economic hedges (not designated as a hedge for accounting purposes) when required by our advance financing arrangements.

Interest Rate-Sensitive Financial Instruments

The tables below present the notional amounts of our financial instruments that are sensitive to changes in interest rates and the related fair value of these instruments at the dates indicated. We use certain assumptions to estimate the fair value of these instruments.


	March 31, 2022				December 31, 2021
	Balance		Fair Value (1)		Balance		Fair Value (1)
Rate-Sensitive Assets:
Interest-earning cash	$	232.1	$	232.1	$	136.7	$	136.7
Loans held for sale, at fair value	716.0		716.0		917.5		917.5
Loans held for sale, at lower of cost or fair value (2)	9.0		9.0		11.0		11.0
Loans held for investment, at fair value	7,451.6		7,451.6		7,199.8		7,199.8


Debt service accounts and time deposits	13.7		13.7		10.6		10.6
Total rate-sensitive assets	$	8,422.4	$	8,422.4	$	8,275.5	$	8,275.5

Rate-Sensitive Liabilities (3):
Advance match funded liabilities	$	497.3	$	495.9	$	512.3	$	512.0
HMBS-related borrowings, at fair value	7,118.8		7,118.8		6,885.0		6,885.0
Mortgage loan warehouse facilities	959.1		959.1		1,085.1		1,085.1
MSR financing facilities, net (4)	894.0		870.5		901.7		873.8

Senior notes (4)	685.0		610.8		685.0		674.9
Total rate-sensitive liabilities	$	10,154.3	$	10,055.2	$	10,069.1	$	10,030.8


	March 31, 2022				December 31, 2021
	Notional Balance		Fair Value (1)		Notional Balance		Fair Value (1)
Rate-Sensitive Derivative Financial Instruments:
Derivative assets (liabilities):
IRLCs	$	617.5	$	5.7	$	1,085.3	$	18.1
Forward sales of reverse loans	201.0		—		175.0		0.4
Interest rate swap futures	—		—		792.5		1.7
TBA forward MBS trades	1,197.0		(3.9)		1,782.0		(0.2)


Interest rate option contracts	2,100.0		(4.7)		575.0		(0.3)


Derivatives, net	$	4,115.5	$	(2.9)	$	4,409.8	$	19.7

(1)See Note 3 – Fair Value to the Unaudited Consolidated Financial Statements for additional fair value information on financial instruments.

(2)Net of valuation allowances and including non-performing loans.

(3)Excludes financing liabilities that result from sales of assets that do not qualify as sales for accounting purposes and, therefore, are accounted for as secured financings, which have no contractual maturity and are amortized over the life of the related assets.

(4)Amounts are exclusive of any related discount or unamortized debt issuance costs.

Sensitivity Analysis

Fair Value MSRs, Loans Held for Sale, Loans Held for Investment and Related Derivatives

The following table summarizes the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale that we have elected to carry at fair value as well as any related derivatives at March 31, 2022, given hypothetical instantaneous parallel shifts in the yield curve. We used March 31, 2022 market rates to perform the sensitivity analysis. The estimates are based on the interest rate risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship to the change in fair value may not be linear.


	Change in Fair Value
	Down 25 bps		Up 25 bps
Asset value of securitized HECM loans, net of HMBS-related borrowing	$	4.1	$	(4.1)
Loans held for investment - Unsecuritized HECM loans and tails	—		—
Loans held for sale	10.8		(11.8)
Derivative instruments	(2.9)		6.6


Total MSRs - Agency and non-Agency (1)	(38.9)		34.7
Interest rate lock commitments (2)	(0.7)		0.9

Total, net	$	(27.7)	$	26.2

(1)Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio. Fair value adjustments to our MSRs are offset, in part, by fair value adjustments related to the NRZ and MAV financing liabilities, which are recorded in Pledged MSR liability expense.

(2)Forward mortgage loans only.

The decrease in our net sensitivity from December 31, 2021 to March 31, 2022 (from approximately $35 - $39 million to $26 - $28 million for a 25 basis point parallel shift in the yield curve) is primarily driven by the effect of the increase in interest rates on the MSR portfolio (due to convexity), the sale of an MSR portfolio and the change in our hedging instruments in the first quarter of 2022.

Borrowings

The majority of the debt used to finance much of our operations is exposed to interest rate fluctuations. We may purchase interest rate swaps and interest rate caps to minimize future interest rate exposure from increases in interest rates, or when required by the financing agreements.

Based on March 31, 2022 balances, if interest rates were to increase by 1% on our variable-rate debt and interest earning cash and float balances, we estimate a net positive impact of approximately $12.2 million resulting from an increase of $23.8 million in annual interest income and an increase of $11.6 million in annual interest expense.

Foreign Currency Exchange Rate Risk

Home Prices

Inactive reverse mortgage loans for which the maximum claim amount has not been met are generally foreclosed upon on behalf of Ginnie Mae with the REO remaining in the related HMBS until liquidation. Inactive MCA repurchased loans are generally foreclosed upon and liquidated by the HMBS issuer. Although active and inactive reverse mortgage loans are insured by FHA, we may incur expenses and losses in the process of repurchasing and liquidating these loans that are not reimbursable by FHA in accordance with program guidelines. In addition, in certain circumstances, we may be subject to real estate price risk to the extent we are unable to liquidate REO within the FHA program guidelines. As our reverse mortgage portfolio seasons, and the volume of MCA repurchases increases, our exposure to this risk will increase.

ITEM 4. CONTROLS AND PROCEDURES

Our management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of March 31, 2022.

Based on such evaluation, management concluded that our disclosure controls and procedures as of March 31, 2022 were (1) designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer or principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 19 – Regulatory Requirements and Note 21 – Contingencies to the Unaudited Consolidated Financial Statements. That information is incorporated into this item by reference.

ITEM 1A. RISK FACTORS

An investment in our common stock involves significant risk. We describe the most significant risks that management believes affect or could affect us under Part I, Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2021. Understanding these risks is important to understanding any statement in such reports and in our subsequent SEC filings (including this Form 10-Q) and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described therein together with all the other information included or incorporated by reference in such Annual Report and in our subsequent SEC filings before you make any decision regarding an investment in our common stock. You should also consider the information set forth under “Forward-Looking Statements.” If any of the risks actually occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment.

ITEM 6. EXHIBITS


						3.1						Amended and Restated Articles of Incorporation, as amended (1)
						3.2						Amended and Restated Bylaws of Ocwen Financial Corporation (2)
						4.1						The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to the issuance of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
						31.1						Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
						31.2						Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
						32.1						Certification of the principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
						32.2						Certification of the principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
						101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 were formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
						104						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (Included as Exhibit 101).

(1)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 10-Q for the period ended September 30, 2020 filed on November 3, 2020.

(2)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 8-K filed on February 25, 2019.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Ocwen Financial Corporation

	By:	/s/ June C. Campbell

		Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as its principal financial officer)
Date: May 5, 2022